<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 2, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
ACE LIMITED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CAYMAN ISLANDS [NOT APPLICABLE]
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) NUMBER)
THE ACE BUILDING
30 WOODBOURNE AVENUE
HAMILTON HM 08, BERMUDA
(441) 295-5200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
CT CORPORATION SYSTEM
1633 BROADWAY
NEW YORK, NEW YORK 10019
(212) 664-1666
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
PETER N. MEAR EDWARD S. BEST ROBERT SULLIVAN
GENERAL COUNSEL AND MAYER, BROWN & PLATTSKADDEN, ARPS, SLATE, MEAGHER
SECRETARY & FLOM LLP
190 SOUTH LASALLE STREET
ACE LIMITED CHICAGO, ILLINOIS 60603 919 THIRD AVENUE
30 WOODBOURNE AVENUE (312) 782-0600 NEW YORK, NEW YORK 10022
HAMILTON HM 08 (212) 735-3000
BERMUDA
(441) 295-5200 ---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box: [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING PRICE REGISTRATION
REGISTERED REGISTERED PER SHARE (1) (1) FEE
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<S> <C> <C> <C> <C>
Ordinary Shares,
$0.041666667 par value
per share............. 18,975,000 shares $37.38 $709,285,500 $209,239
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</TABLE>
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(1) Estimated pursuant to Rule 457(c) under the Securities Act of 1933 solely
for purposes of determining the registration fee, based on the average of
the high and low sale prices of the registrant's Ordinary Shares as
reported on The New York Stock Exchange Composite Tape on March 31, 1998.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED APRIL 2, 1998
PROSPECTUS
18,975,000 Shares
ACE LIMITED
Ordinary Shares
(Par value $0.041666667)
---------
This prospectus relates to 18,975,000 ordinary shares, par value $0.041666667
per share ("Ordinary Shares"), of ACE Limited, a Cayman Islands company (the
"Company"), which may be offered from time to time by the Company (the
"Offering"). The Company may, from time to time, as determined by market
conditions, offer shares in ordinary brokerage transactions on the New York
Stock Exchange, Inc., by means of one or more block trades, secondary
distributions, exchange distributions or special offerings, through a broker-
dealer who purchases such shares as principal and resells them for its own
account, or in other transactions to be determined at the time of sale. Such
sales may be consummated using one or more broker-dealers. The specific terms
of the offering and sale of the Ordinary Shares in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include the public offering price and the aggregate number
of Ordinary Shares offered. If any broker-dealers are involved in the sale of
any of the Ordinary Shares, their names and any applicable purchase price, fee,
commission or discount arrangement between or among them will be set forth in
or will be calculable from the information set forth in the applicable
Prospectus Supplement. No Ordinary Shares may be sold without delivery of the
applicable Prospectus Supplement describing the method and terms of the
offering thereof. See "Plan of Distribution."
The Ordinary Shares are listed on the New York Stock Exchange, Inc. (the
"NYSE") under the symbol "ACL." On March 31, 1998, the last reported sales
price of the Ordinary Shares on the NYSE was $37 11/16 per share.
This Prospectus may not be used to consummate sales of Ordinary Shares unless
accompanied by a Prospectus Supplement.
---------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURI-
TIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
---------
Prospectus dated , 1998
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE
SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "PLAN OF DISTRIBUTION."
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Offices at Seven World Trade Center, 13th Floor, New
York, New York 10048 and Citicorp Center, Suite 1400, 500 West Madison Street,
Chicago, Illinois 60661. Copies of such material can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates, or at the Commission's worldwide
web site at http://www.sec.gov. Such reports, proxy statements and other
information concerning the Company may also be inspected and copied at the
offices of the NYSE, 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments and exhibits, the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Ordinary Shares offered hereby. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain items of which
are contained in exhibits to the Registration Statement as permitted by the
rules and regulations of the Commission. Statements made in this Prospectus as
to the contents of any contract, agreement or other document referred to are
not necessarily complete. With respect to each such contract, agreement or
other document filed as an exhibit to the Registration Statement, reference is
made to the exhibit for a more complete description of the matter involved,
and each such statement shall be deemed qualified in its entirety by such
reference.
ENFORCEMENT OF CIVIL LIABILITIES UNDER
UNITED STATES FEDERAL SECURITIES LAWS
The Company is a Cayman Islands company and certain of its officers and
directors are residents of various jurisdictions outside of the United States.
All or a substantial portion of the assets of the Company and such officers
and directors, at any one time, are or may be located in jurisdictions outside
of the United States. Therefore, it ordinarily could be difficult for
investors to effect service of process within the United States on any of the
parties who reside outside the United States or to recover against them on
judgments of United States courts predicated upon civil liability under the
United States federal securities laws. Notwithstanding the foregoing, the
Company has appointed CT Corporation System, 1633 Broadway, New York, New York
10019, as its agent to receive service of process with respect to actions
against it arising out of or in connection with the United States federal
securities laws or out of violations of such laws in any federal or state
court in the United States, in any case relating to the transactions covered
by this Prospectus. The Company has been advised by Maples and Calder, its
Cayman Islands counsel, that there is doubt as to whether the courts of the
Cayman Islands would enforce (i) judgments of United States courts obtained in
actions against such persons or the Company predicated solely upon United
States federal securities laws and (ii) original actions brought in the Cayman
Islands against such persons or the Company predicated solely upon United
States federal securities laws. There is no treaty in effect between the
United States and the Cayman Islands providing for such enforcement, and there
are grounds upon which Cayman Islands courts may not enforce judgments of
United States courts. Certain remedies available under the United States
federal securities laws would not be allowed in Cayman Islands courts as
contrary to that jurisdiction's public policy.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission (File No. 1-11778) are
incorporated herein by reference:
(a) Annual Report on Form 10-K for the fiscal year ended September 30,
1997;
(b) Quarterly Report on Form 10-Q for the quarter ended December 31,
1997;
(c) Current Report on Form 8-K, as amended (Date of earliest event
reported: January 2, 1998);
(d) Current Report on Form 8-K (Date of earliest event reported: March
25, 1998); and
(e) The description of the Ordinary Shares included in the Registration
Statement on Form 8-A dated March 2, 1993, as amended by Amendment No. 1
thereto dated March 11, 1993, filed under Section 12 of the Securities
Exchange Act of 1934.
All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Securities Exchange Act of 1934, as amended, prior
to the termination of the Offering that all securities offered have been sold
or which deregisters all securities then remaining unsold, shall be deemed to
be incorporated herein by reference and shall be deemed a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein will be deemed
to be modified or superseded for purposes of this Prospectus to the extent
that a statement contained herein or in any other subsequently filed document
which also is, or is deemed to be, incorporated by reference herein modifies
or supersedes any such statement. Any such statement so modified or superseded
will not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, on the request of such
person, a copy of any of the foregoing documents incorporated herein by
reference (other than the exhibits to such documents unless such exhibits are
specifically incorporated by reference into such documents). Requests should
be directed to Investor Relations, ACE Limited, The ACE Building, 30
Woodbourne Avenue, Hamilton HM 08, Bermuda (telephone (441) 295-5200,
facsimile (441) 295-5221).
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NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
----------------
FOR NORTH CAROLINA INVESTORS: THE OFFERED SECURITIES HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE COMMISSIONER OF INSURANCE FOR THE STATE OF NORTH
CAROLINA, NOR HAS THE COMMISSIONER OF INSURANCE RULED UPON THE ACCURACY OR THE
ADEQUACY OF THIS DOCUMENT. THE BUYER IN NORTH CAROLINA UNDERSTANDS THAT
NEITHER THE COMPANY NOR ITS SUBSIDIARIES ARE LICENSED IN NORTH CAROLINA
PURSUANT TO CHAPTER 58 OF THE NORTH CAROLINA GENERAL STATUTES, NOR COULD THEY
MEET THE BASIC ADMISSIONS REQUIREMENTS IMPOSED BY SUCH CHAPTER AT THE PRESENT
TIME.
----------------
NO OFFERED SECURITIES MAY BE OFFERED OR SOLD IN THE CAYMAN ISLANDS. PERSONS
RESIDENT IN BERMUDA FOR BERMUDA EXCHANGE CONTROL PURPOSES MAY REQUIRE THE
PRIOR APPROVAL OF THE BERMUDA MONETARY AUTHORITY IN ORDER TO ACQUIRE ANY
OFFERED SECURITIES.
----------------
In this Prospectus, references to "dollar" and "$" are to United States
currency, and the terms "United States" and "U.S." mean the United States of
America, its states, its territories, its possessions and all areas subject to
its jurisdiction.
3
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THE COMPANY
ACE is a holding company incorporated with limited liability under the
Cayman Islands Companies Law and maintains its principal business office in
Bermuda. The Company, through its Bermuda-based operating subsidiaries, A.C.E.
Insurance Company, Ltd., Corporate Officers & Directors Assurance Ltd.
("CODA") and Tempest Reinsurance Company Limited ("Tempest"), provides
insurance and reinsurance for a diverse group of international clients.
Through its U.S.-based subsidiary, ACE USA, Inc. (formerly Westchester
Specialty Group, Inc.) ("ACE USA"), the Company provides commercial and
umbrella coverages to a broad range of clients in the United States. In
addition, the Company provides funds at Lloyd's to support underwriting by
syndicates managed by Methuen Underwriting Limited ("MUL"), ACE London
Aviation Limited ("ALA") and ACE London Underwriting Limited ("ALU"), its
indirect wholly owned subsidiaries.
The Company's long-term business strategy focuses on achieving underwriting
profits and providing value to its clients and shareholders through the
utilization of its growing capital base within the insurance and reinsurance
markets. As part of this strategy, the Company acquired CODA in 1993. During
1994 and 1995, the Company diversified its product portfolio from excess
liability insurance and directors and officers liability insurance to
accommodate the needs of its expanding, global client base of multinational
corporations by adding satellite insurance, aviation insurance, excess
property insurance and financial lines products. This diversification added
balance to the risk of the existing portfolio of insurance products and
enhanced the Company's overall profit potential while utilizing its existing
capital base. The Company continued its strategic diversification with the
acquisition in March 1996 of 51 percent of Methuen Group Limited ("Methuen"),
the holding company for MUL, and in July 1996 of Tempest, a leading Bermuda-
based property catastrophe reinsurer. The acquisition of Tempest provided the
Company with a unique opportunity to expand into the property catastrophe
reinsurance business through an established and well known reinsurance
company. Tempest underwrites property catastrophe reinsurance on a worldwide
basis, emphasizing excess layer coverages, and has large aggregate exposures
to man-made and natural disasters. The short-tail nature of the property
catastrophe business and shorter loss payout patterns complement the generally
longer-tail nature of the Company's other product lines.
In November 1996, the Company acquired the remaining 49 percent interest in
Methuen. Also in November 1996, the company acquired Ockham Worldwide Holdings
plc which subsequently changed its name to ACE London Holdings Ltd ("ACE
London"). ACE London owns two Lloyd's managing agencies, ALA and ALU.
In March 1997, the Company, together with two other insurance companies,
formed a managing general agency in Bermuda to provide underwriting services
to the three organizations for political risk insurance coverage. The new
company, Sovereign Risk Insurance Ltd ("Sovereign") issues subscription
policies with the Company assuming 50 percent of each risk underwritten. The
Company currently cedes 10 percent of all risks assumed from Sovereign.
Sovereign offers limits of up to $50 million per project ($100 million per
project after July 1, 1998) and $100 million per country ($250 million with
respect to certain countries).
On January 2, 1998, the Company acquired all of the outstanding capital
stock of ACE USA for aggregate cash consideration of $338 million. ACE USA,
through its insurance subsidiaries, provides specialty commercial property and
umbrella liability coverages in the U.S. In connection with the acquisition,
National Indemnity, a subsidiary of Berkshire Hathaway, provided $750 million
(75 percent quota share of $1 billion) of reinsurance protection to ACE USA
with respect to its loss reserves for the 1996 and prior accident years. The
Company financed this transaction with $250 million of bank debt and the
remainder with available cash.
On September 30, 1997, the Company announced the incorporation of ACE
Insurance Company Europe Limited ("AICE"), as part of the International
Financial Services Centre in Dublin, Ireland. AICE has been granted a license
to write all 18 classes of non-life insurance in all member states of the
European Union.
On March 11, 1998, the Company announced the formation of a joint venture,
ACE Capital Re Limited, with Capital Re Corporation ("Capital Re"). ACE
Capital Re Limited, a Bermuda-domiciled professional
4
<PAGE>
reinsurance company, will write both traditional and custom-designed programs
covering financial guaranty, mortgage guaranty and a broad range of financial
risks. Operations will be underwritten and managed in Bermuda by a joint
venture managing agency, ACE Capital Re Managers Ltd. The Company and Capital
Re each have a 50 percent economic interest in ACE Capital Re Limited and ACE
Capital Re Managers Ltd.
On April 1, 1998, the Company acquired (the "CAT Acquisition") CAT Limited
("CAT"), a privately-held Bermuda-based property catastrophe reinsurance
company, for $711 million in cash, subject to certain adjustments. See "The
CAT Acquisition."
The Company's principal executive offices are located at The ACE Building,
30 Woodbourne Avenue, Hamilton HM 08 Bermuda, and its telephone number is
(441) 295-5200.
THE CAT ACQUISITION
On April 1, 1998, the Company acquired CAT, a privately-held Bermuda-based
property catastrophe reinsurance company, for total consideration of $711
million. Of the total consideration, $624 million was paid by the Company to
CAT's shareholders at closing and $67 million was paid by CAT to the holders
of certain of its equity award units and stock options at closing. In
addition, the Company agreed to pay to CAT's shareholders the increase, if
any, in CAT's net book value from January 1, 1998 to April 1, 1998, subject to
a maximum of $40 million. At closing, the Company paid $20 million, the
estimated increase in such net book value, into an escrow pending
determination of CAT's closing net book value. At December 31, 1997, CAT's net
book value was approximately $474 million (after giving effect to the
distribution of the outstanding capital stock of Enterprise). For the year
ended December 31, 1997, CAT had net premiums written of $136 million and net
income of $106 million.
Prior to consummation of the CAT Acquisition, CAT disposed of its interest
in Enterprise Reinsurance Holdings Corporation ("Enterprise"), a provider of
finite reinsurance, insurance and strategic risk financing, to CAT's
shareholders. ACE received from certain of CAT's shareholders an option to
acquire up to 29 percent of the outstanding capital stock (19.9 percent voting
interest) of Enterprise.
Simultaneously with the closing of the CAT Acquisition, CAT acquired all of
the outstanding capital stock of Hamilton Services Limited, a technology and
support services company whose principal customer is CAT, for approximately
$1.6 million in cash.
Initially, the CAT Acquisition was financed with approximately $385 million
of short-term borrowings under the Company's existing credit facility and from
available cash. A portion of the proceeds from the Offering will be used to
refinance the aforementioned borrowings.
5
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USE OF PROCEEDS
The net proceeds from the sale of the Ordinary Shares offered hereby will be
used to repay $385 million of indebtedness incurred by the Company in
connection with the CAT Acquisition and the remaining net proceeds will be
used for general corporate purposes, which may include acquisitions. The
aforementioned indebtedness was borrowed under the Company's existing
revolving credit agreement and bears interest at a rate based upon the London
Interbank Offered Rate (5.95 percent as of March 27, 1998).
TAXATION OF SHAREHOLDERS OF THE COMPANY
The following summary of the taxation of shareholders of the Company is
based upon current law. Legislative, judicial or administrative changes may be
forthcoming that could affect this summary.
Statements made below as to Cayman Islands law are based on the opinion of
Maples and Calder, Cayman Islands counsel to the Company. Statements made
below as to Bermuda law are based on the opinion of Conyers Dill & Pearman,
Bermuda counsel to the Company. Statements made below as to United States law
are based upon the opinion of Mayer, Brown & Platt, United States counsel to
the Company.
CAYMAN ISLANDS TAXATION
Dividends paid by the Company are not subject to Cayman Islands withholding
tax.
BERMUDA TAXATION
Currently, there is no Bermuda withholding tax on dividends paid by the
Company.
UNITED STATES TAXATION OF U.S. AND NON-U.S. SHAREHOLDERS
Summary
The following summary is qualified in its entirety by the more detailed
discussions set forth below:
. In any fiscal year in which the gross related person insurance income
("RPII") of any foreign insurance company subsidiary of the Company is
20 percent or more of such insurance company subsidiary's gross
insurance income for such fiscal year, U.S. persons who own Ordinary
Shares on the last day of such subsidiary's fiscal year may be required
to include their pro rata share of such insurance company subsidiary's
RPII, as described below, in their income for their taxable year which
includes the last day of the subsidiary's fiscal year and report such
amount on the U.S. income tax or information returns that they would
normally file for that taxable year. They also would be required to
attach to their returns Internal Revenue Service ("IRS") Form 5471,
which shows the calculation of RPII and certain other information about
the Company. Although no assurances can be given, the Company believes
that RPII will be less than 20 percent of gross insurance income for the
current and future fiscal years.
. IF RPII reporting is required for a particular fiscal year, the Company
will send to each shareholder who owned Ordinary Shares on the last day
of such year a Form 5471 completed with all Company information
(including the amount of RPII) and instructions for completing the
shareholder information. Tax-exempt organizations may be required to
report their share of RPII for any taxable year in which RPII reporting
is required on the information return that such tax-exempt organizations
would normally file for the year that includes the last day of such tax
year and attach to that return Form 5471.
. Gain from the sale or exchange of Ordinary Shares that would otherwise
be capital gain will not be treated as ordinary income pursuant to Code
section 1248 of the U.S. Internal Revenue Code (the
6
<PAGE>
"Code"). It is possible, however, that the IRS might interpret
regulations proposed by the U.S. Treasury Department, or that the
Treasury Department might amend such regulations, to apply section 1248
and the requirement to file Form 5471 to dispositions of Ordinary
Shares. If the IRS or Treasury Department were to take such action, the
Company would notify shareholders that Section 1248 will apply to
dispositions of Ordinary Shares. Under current law, U.S. persons
(including tax-exempt organizations) who own less than 10 percent of the
Ordinary Shares and sell or exchange Ordinary Shares will not be
required to file Form 5471 with respect to such dispositions.
RPII
The following discussion generally is applicable only if the RPII of any of
the Company's foreign insurance company subsidiaries, determined on a gross
basis, is 20 percent or more of that insurance company subsidiary's gross
insurance income for the taxable year. For the Company's most recent fiscal
year ended September 30, 1997, the Company believes gross RPII of each of its
foreign insurance company subsidiaries was below 20 percent for the year.
Although no assurances can be given, the Company anticipates that gross RPII
of each of its foreign insurance company subsidiaries will be less than 20
percent of each such subsidiary's gross insurance income for subsequent years
and will endeavor to take such steps as it determines to be reasonable to
cause its gross RPII to remain below such level.
Classification of the Company as a Controlled Foreign Corporation
Under section 951(a) of the Code, each "United States shareholder" of a
"controlled foreign corporation" ("CFC") must include in its gross income for
United States federal income tax purposes its pro rata share of the CFC's
"subpart F income," even if the subpart F income is not distributed. Under
Code section 951(b), any U.S. corporation, citizen, resident or other U.S.
person who owns, directly or indirectly through foreign persons, or is
considered to own (by application of the rules of constructive ownership set
forth in Code section 958(b), generally applying to family members,
partnerships, estates, trusts or controlled corporations) 10 percent or more
of the total combined voting power of all classes of stock of the foreign
corporation will be considered to be a "United States shareholder." In
general, a foreign corporation is treated as a CFC only if such "United States
shareholders" collectively own more than 50 percent (more than 25 percent for
certain insurance companies) of the total combined voting power or total value
of the corporation's stock for an uninterrupted period of 30 days or more
during any tax year. The Company believes that because of the wide dispersion
of its share ownership and because under its Articles of Association no single
shareholder is permitted to hold as much as 10 percent of its total combined
voting power, it is not a CFC under the foregoing general rules.
RPII Companies
Different definitions of "United States shareholders" and "controlled
foreign corporation" are applicable in the case of a foreign corporation which
earns RPII. RPII is defined in Code section 953(c)(2) as any "insurance
income" attributable to policies of insurance or reinsurance with respect to
which the person (directly or indirectly) insured is a "United States
shareholder" or a "related person" to such a shareholder. The proposed
regulations provide that, in general, "insurance income is income (including
premium and investment income) attributable to the issuing or reinsuring of
any insurance or annuity contract in connection with risks located in a
country . . . other than the country under the laws of which the controlled
foreign corporation is created or organized and which would be taxed under
[the portions of the Code relating to insurance companies] if the income were
the income of a domestic insurance company."
Generally, the term "related person" for this purpose means someone who
controls or is controlled by the U.S. shareholder or someone who is controlled
by the same person or persons which control the U.S. shareholder. Control is
measured by either more than 50 percent in value or more than 50 percent in
voting power of stock applying constructive ownership principles similar to
the rules of section 958 of the Code. A corporation's pension plan is
ordinarily not a "related person" with respect to the corporation unless the
pension plan owns, directly or indirectly through the application of
constructive ownership rules similar to those contained in section
7
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958, more than 50 percent measured by vote or value, of the stock of the
corporation. For purposes of inclusion of the Company's insurance company
subsidiaries' RPII in the income of United States shareholders, unless an
exception applies, the term "United States shareholder" includes all U.S.
persons who beneficially own any amount (rather than 10 percent or more) of
the Company's stock. An insurance company subsidiary of the Company will be
treated as a CFC if such U.S. persons are treated as owning 25 percent or more
of the stock of the insurance company subsidiary.
In determining the "United States shareholders" of the Company's foreign
insurance company subsidiaries, stock of the Company's foreign insurance
company subsidiaries held indirectly by U.S. persons through the Company or
any other non-U.S. entity is treated as held by United States shareholders.
RPII Exceptions
The special RPII rules do not apply if (A) direct and indirect insureds and
persons related to such insureds, whether or not U.S. persons, are treated as
owning less than 20 percent of the voting power and less than 20 percent of
the value of the stock of the Company's insurance company subsidiaries (which
exception is not anticipated to apply to the Company and its subsidiaries),
(B) the RPII of each of the Company's foreign insurance company subsidiaries,
determined on a gross basis, is less than 20 percent of each such subsidiary's
gross insurance income for the taxable year, (C) a foreign insurance company
subsidiary of the Company elects to be taxed on its RPII as if the RPII were
effectively connected with the conduct of a United States trade or business,
or (D) a foreign insurance company subsidiary of the Company elects to be
treated as a United States corporation. Where none of these exceptions
applies, each United States person owning or treated as owning stock in the
Company (and therefore, indirectly, in a foreign insurance company subsidiary
of the Company) on the last day of an insurance company subsidiary's fiscal
year will be required to include in its gross income for United States federal
income tax purposes its share of the RPII for the entire taxable year,
determined as if all such RPII were distributed proportionately only to such
United States shareholders at that date, but limited by the insurance company
subsidiaries' current-year earnings and profits and by the U.S. shareholder's
share, if any, of prior-year deficits in earnings and profits.
Computation of RPII
In order to determine how much RPII the Company has earned in each fiscal
year, the Company obtains and relies upon information from its insureds to
determine whether any of the insureds or persons related to such insureds own
shares of the Company and are U.S. persons. The Company currently sends, and
intends to continue to send, a letter after each fiscal year to each person
who was an insured during the year asking the insured to represent whether it
was a U.S. shareholder of the Company or related to a U.S. shareholder during
the year. For any year in which gross RPII is 20 percent or more of a foreign
insurance company subsidiary's gross insurance income for the year, the
Company may also seek information from its shareholders as to whether
beneficial owners of Ordinary Shares at the end of the year are United States
persons so that the RPII may be determined and apportioned among such persons.
The Company will inform all shareholders of RPII per share and U.S.
shareholders are obligated to file a return reporting such amounts. To the
extent the Company is unable to determine whether a beneficial owner of shares
is a U.S. person the Company may assume that such owner is not a U.S. person
for the purpose of allocating RPII, thereby increasing the per share RPII
amount for all U.S. shareholders.
If, as anticipated, RPII of each of the Company's foreign insurance company
subsidiaries is less than 20 percent of gross insurance income for the current
and subsequent fiscal years, U.S. shareholders will not be required to include
RPII in their taxable income for such years. The Company's estimate of its
insurance company subsidiaries' gross insurance income constituting RPII is
based on information provided to the Company by insureds of those insurance
company subsidiaries concerning whether the insureds are "United States
shareholders" or "related persons" thereto. The amount of RPII includible in
the income of a U.S. shareholder is based upon the net RPII income for the
year after deducting related expenses such as losses, loss reserves and
operating expenses.
8
<PAGE>
Apportionment of RPII to U.S. Shareholders
Every U.S. person who owns Ordinary Shares on the last day of any fiscal
year of a foreign insurance company subsidiary in which such insurance company
subsidiary's gross insurance income constituting RPII for that year equals or
exceeds 20 percent of that insurance company subsidiary's gross insurance
income should expect that for such year it will be required to include in
gross income its share of that insurance company subsidiary's RPII for the
entire year, whether or not distributed, even though it may not have owned the
shares for the entire year. A U.S. person who owns Ordinary Shares during such
fiscal year but not on the last day of the fiscal year, which would normally
be September 30, is not required to include in gross income any part of the
Company's insurance company subsidiaries' RPII.
The tax consequences of RPII will not be applicable in any future fiscal
year in which the gross insurance income attributable to U.S. shareholders is
less than 20 percent of the gross insurance income of any of the Company's
insurance subsidiaries. See "Taxation of Shareholders of the Company--United
States Taxation of U.S. and Non-U.S. Shareholders--RPII." The Company expects
that the gross insurance income of its foreign insurance company subsidiaries
attributable to U.S. shareholders for its current and subsequent fiscal years
will be below 20 percent of the gross insurance income of each such insurance
company subsidiary.
Information Reporting
Each U.S. person who is a shareholder of the Company on the last day of a
fiscal year of a foreign insurance company subsidiary in which such foreign
insurance company subsidiary's gross RPII constitutes 20 percent or more of
that foreign insurance company subsidiary's gross insurance income must attach
to the income tax or information return it would normally file for the period
which includes that date a Form 5471 with respect to the Company. This filing
requirement applies if the Company is a CFC for any thirty-day period during
its fiscal year whether or not any net RPII income is required to be reported.
The foreign insurance company subsidiaries of the Company will not be
considered to be CFCs for this purpose and, therefore, Form 5471 will not be
required, for any fiscal year in which each such foreign insurance company
subsidiary's gross RPII constitutes less than 20 percent of its gross
insurance income. U.S. persons who at any time own 10 percent or more of the
shares of the Company may be required in certain circumstances to file Form
5471 regardless of the amount of RPII received by the insurance company
subsidiaries. For any year in which any of the Company's foreign insurance
company subsidiaries' gross RPII constitutes 20 percent or more of their
respective gross insurance incomes, the Company intends to mail to all
shareholders of record, and will make available at the transfer agent with
respect to the Ordinary Shares, Form 5471 (completed with Company information)
for attachment to the returns of shareholders. The amounts of the RPII
inclusions may be subject to adjustment based upon subsequent IRS examination.
A tax-exempt organization will be required to attach Form 5471 to its
information return in the circumstances described above. Failure to file Form
5471 may result in penalties.
Tax-Exempt Shareholders
U.S. tax-exempt shareholders to which RPII is allocated are required to
treat such RPII as unrelated business taxable income within the meaning of
Code section 512, except to the extent that RPII is due to insurance or
reinsurance of that tax-exempt shareholder or its affiliates.
Basis Adjustments
A U.S. shareholder's tax basis in its Ordinary Shares will be increased by
the amount of any RPII that the shareholder includes in income. The
shareholder may exclude from income the amount of any distributions by the
Company to the extent of the RPII included in income for the year in which the
distribution was paid or for any prior year. The U.S. shareholder's tax basis
in its Ordinary Shares will be reduced by the amount of such distributions
that are excluded from income. In general, a U.S. shareholder will not be able
to exclude from income distributions with respect to RPII that a prior
shareholder included in income.
9
<PAGE>
Dispositions of Ordinary Shares
Code section 1248 provides that if a U.S. person owns 10 percent or more of
the voting shares of a corporation that is a CFC, any gain from the sale or
exchange of the shares may be treated as ordinary income to the extent of the
CFC's earnings and profits during the period that the shareholder held the
shares (with certain adjustments). Code section 953(c)(7) generally provides
that section 1248 also will apply to the sale or exchange of shares in a
foreign corporation that earns RPII if the foreign corporation would be taxed
as an insurance company if it were a domestic corporation, regardless of
whether the shareholder is a 10 percent shareholder or whether RPII
constitutes 20 percent or more of the corporation's gross insurance income.
Existing Treasury Department regulations do not address whether Code section
1248 would apply when the foreign corporation (such as the Company) is not a
CFC but the foreign corporation has a subsidiary that is a CFC or that would
be taxed as an insurance company if it were a domestic corporation.
The Company believes, based on the advice of counsel, that Code section 1248
will not apply to dispositions of Ordinary Shares because the Company does not
have any 10 percent shareholders and the Company is not directly engaged in
the insurance business. There can be no assurance, however, that the IRS will
interpret proposed regulations under Code section 953 in this manner or that
the Treasury Department will not amend the proposed regulations under Code
section 953 or other regulations to provide that Code section 1248 will apply
to dispositions of shares in a corporation such as the Company which is
engaged in the insurance business directly or indirectly through its
subsidiaries. If the IRS or Treasury Department were to take such action, the
Company would notify shareholders that Code section 1248 will apply to
dispositions of Ordinary Shares.
A shareholder of the Company who at no time owns 10 percent or more of the
Ordinary Shares is not required to file IRS Form 5471 with respect to a
disposition of Ordinary Shares. A 10 percent U.S. shareholder of the Company
may in certain circumstances be required to report a disposition of Ordinary
Shares by attaching Form 5471 to the U.S. income tax or information return
that it would normally file for the taxable year in which the disposition
occurs.
Foreign Tax Credit
Because U.S. shareholders own a majority of the Company's shares and because
a substantial part of the Company's foreign insurance company subsidiaries'
business includes the insurance of U.S. risks, only a portion of the RPII and
dividends paid by the Company (including any gain from the sale of Ordinary
Shares that is treated as a dividend under Section 1248 of the Code) will be
treated as foreign source income for purposes of computing a shareholder's
U.S. foreign tax credit limitation. It is likely that substantially all of the
RPII and dividends that are foreign source income will constitute either
"passive" or "financial services" income for foreign tax credit limitation
purposes. Thus, it may not be possible for certain U.S. shareholders to
utilize excess foreign tax credits to reduce U.S. tax on such income.
Uncertainty as to Application of RPII
The RPII provisions of the Code have never been interpreted by the courts.
Regulations interpreting the RPII provisions of the Code exist only in
proposed form, having been proposed on April 16, 1991. It is not certain
whether these regulations will be adopted in their proposed form or what
changes or clarifications might ultimately be made thereto or whether any such
changes, as well as any interpretation or application of RPII by the IRS, the
courts or otherwise, might have retroactive effect. The description of RPII
herein is therefore qualified. Accordingly, the meaning of the RPII provisions
and the application thereof to the Company and its subsidiaries is uncertain.
These provisions include the grant of authority to the U.S. Treasury
Department to prescribe "such regulations as may be necessary to carry out the
purpose of this subsection including . . . regulations preventing the
avoidance of this subsection through cross insurance arrangements or
otherwise." In addition, there can be no assurance that the amounts of the
RPII inclusions will not be subject to adjustment based upon subsequent IRS
examination. Each U.S. person who is considering an investment in Ordinary
Shares should consult his tax advisor as to the effects of these
uncertainties.
10
<PAGE>
Passive Foreign Investment Companies
Sections 1291 through 1298 of the Code contain special rules applicable with
respect to foreign corporations that are "passive foreign investment
companies" ("PFICs"). In general, a foreign corporation will be a PFIC if 75
percent or more of its income constitutes "passive income" or 50 percent or
more of its assets produce passive income. If the Company were to be
characterized as a PFIC, its United States shareholders would be subject to a
penalty tax at the time of their sale of (or receipt of an "excess
distribution" with respect to) its shares and a portion of the gain may be
recharacterized as ordinary income. In general, a shareholder receives an
"excess distribution" if the amount of the distribution is more than 125
percent of the average distribution with respect to the stock during the three
preceding taxable years (or shorter period during which the taxpayer held the
stock). In general, the penalty tax is equivalent to an interest charge on
taxes that are deemed due during the period the United States shareholder
owned the shares, computed by assuming that the excess distribution or gain
(in the case of a sale) with respect to the shares was taxed in equal portions
throughout the holder's period of ownership at the highest marginal tax rate
for ordinary income. The interest charge is equal to the applicable rate
imposed on underpayments of U.S. Federal income tax for such period.
The PFIC statutory provisions contain an express exception for income
"derived in the active conduct of an insurance business by a corporation which
is predominantly engaged in an insurance business . . . ." This exception is
intended to ensure that income derived by a bona fide insurance company is not
treated as passive income, except to the extent such income is attributable to
financial reserves in excess of the reasonable needs of the insurance
business. In the Company's view, the Company and its wholly-owned direct and
indirect subsidiaries are predominantly engaged in an insurance business and
do not have financial reserves in excess of the reasonable needs of their
insurance business. The PFIC statutory provisions contain a look-through rule
that states that, for purposes of determining whether a foreign corporation is
a PFIC, such foreign corporation shall be treated as if it received "directly
its proportionate share of the income . . ." and as if it "held its
proportionate share of the assets . . ." of any other corporation in which it
owns at least 25 percent of the stock. Under the look-through rule the Company
would be deemed to own the assets and to have received the income of its
insurance subsidiaries directly for purposes of determining whether the
Company qualifies for the aforementioned insurance exception.
However, no regulations interpreting the substantive PFIC provisions have
yet been issued. Therefore, substantial uncertainty exists with respect to
their application or their possible retroactivity. Each U.S. person who is
considering an investment in Ordinary Shares should consult his tax advisor as
to the effects of these rules.
Other
Dividends paid by the Company to U.S. corporate shareholders will not be
eligible for the dividends received deduction provided by section 243 of the
Code.
Except as discussed below with respect to backup withholding, dividends paid
by the Company will not be subject to a U.S. withholding tax.
Nonresident alien individuals will not be subject to U.S. estate tax with
respect to Ordinary Shares of the Company.
Information reporting to the IRS by paying agents and custodians located in
the U.S. will be required with respect to payments of dividends (if any) on
the Ordinary Shares to U.S. persons or to paying agents or custodians located
in the United States. In addition, a holder of Ordinary Shares may be subject
to backup withholding at the rate of 31 percent with respect to dividends paid
by such persons, unless such holder (a) is a corporation or comes within
certain other exempt categories and, when required, demonstrates this fact; or
(b) provides a taxpayer identification number, certifies as to no loss of
exemption from backup withholding and otherwise complies with applicable
requirements of the backup withholding rules. The backup withholding tax is
not an additional tax and may be credited against a holder's regular Federal
income tax liability.
11
<PAGE>
Subject to certain exceptions, persons that are not U.S. persons will be
subject to United States Federal income tax on dividend distributions with
respect to, and gain realized from the sale or exchange of, Ordinary Shares
only if such dividends or gains are effectively connected with the conduct of
a trade or business within the United States.
The foregoing discussion (including and subject to the matters and
qualifications set forth in such summary) of certain tax considerations (i)
under "Taxation of Shareholders of the Company--Bermuda Taxation" is based
upon the advice of Conyers Dill & Pearman, Hamilton, Bermuda, (ii) under
"Taxation of Shareholders of the Company--Cayman Islands Taxation" is based
upon the advice of Maples and Calder, George Town, Cayman Islands, British
West Indies, and (iii) under "Taxation of Shareholders of the Company--United
States Taxation of U.S. and Non-U.S. Shareholders" is based upon the advice of
Mayer, Brown & Platt, Chicago, Illinois (the advice of such firms does not
include any factual accounting matters, determinations or conclusions such as
RPII amounts and computations and amounts of components thereof (for example,
amounts or computations of income or expense items or reserves entering into
RPII computations) or facts relating to the Company's business or activities,
all of which have been supplied by the Company). The summary is based upon
current law and is for general information only. The tax treatment of a holder
of Ordinary Shares, or of a person treated as a holder of Ordinary Shares for
United States Federal income, state, local or non-U.S. tax purposes, may vary
depending on the holder's particular tax situation. Legislative, judicial or
administrative changes or interpretations may be forthcoming that could be
retroactive and could affect the tax consequences to holders of Ordinary
Shares. PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
CONCERNING THE FEDERAL, STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES TO THEM OF
OWNING THE ORDINARY SHARES.
PLAN OF DISTRIBUTION
The Company may sell Ordinary Shares registered hereunder from time to time
in one or more transactions on or after the date hereof. The aggregate
proceeds to the Company from sales of the Ordinary Shares offered hereby will
be the purchase price of such Ordinary Shares, less any commissions, discounts
or other compensation of the Broker-Dealer (as defined).
Sales of Ordinary Shares by the Company may be made from time to time, as
market conditions permit, by any of the following means, or any combination
thereof, using such broker-dealer or broker-dealers as may enter into
arrangements with the Company from time to time (herein referred to as the
"Broker-Dealer"): (i) ordinary brokerage transactions on the NYSE and
transactions in which the Broker-Dealer solicits purchasers; (ii) block trades
in accordance with the rules of the NYSE in which the Broker-Dealer may
attempt to sell the Ordinary Shares as agent but may position and resell all
or a portion of the block as principal to facilitate the transactions; (iii)
"off-board" secondary distributions, exchange distributions or special
offerings in accordance with the rules of the NYSE in which the Broker-Dealer
may act as principal or agent; (iv) sales to the Broker-Dealer in which such
Broker-Dealer purchases the shares as principal and resells such shares for
its own account pursuant to a Prospectus Supplement; (v) sales "at the market"
or to or through a market maker or into an existing trading market, on an
exchange or otherwise, for such Ordinary Shares; and (vi) sales in other ways
not involving market makers or established trading markets, including direct
sales to institutions or individual purchasers.
The Ordinary Shares are expected to be sold at prices prevailing at the time
of sale, and it is anticipated that the offering prices will not exceed the
last reported sale price for the Ordinary Shares of the Company on the NYSE
immediately prior to the determination thereof. The Broker-Dealer will receive
such brokerage commissions or other compensation as may be negotiated with the
Company immediately prior to the sale. Such commissions or other compensation
are not expected to exceed those customary in the types of transactions
involved. The Broker-Dealer may also receive compensation from purchasers of
the Ordinary Shares which is not expected to exceed that customary in the
types of transactions involved.
In connection with the sale of the Ordinary Shares offered hereby, the
Broker-Dealer may be deemed to be an underwriter within the meaning of the
Securities Act, in which event the brokerage commissions or discounts
12
<PAGE>
received by it may be deemed to be underwriting compensation. To the extent
required by the Securities Act, additional information relating to the
specific Ordinary Shares offered, the price at which such Ordinary Shares are
offered and the particular selling arrangements, if any, made with any Broker-
Dealer in connection therewith (including any applicable commissions or
discounts) will be set forth in an accompanying Prospectus Supplement or, if
appropriate, a post-effective amendment to the Registration Statement of which
this Prospectus is a part. The Company, under arrangements which it may enter
into with the Broker-Dealer, may agree to indemnify the Broker-Dealer against
certain liabilities, including liabilities under the Securities Act or to
contribute to payments that the Broker-Dealer may be required to make in
respect thereof.
LEGAL MATTERS
Certain legal matters with respect to Cayman Islands law and with respect to
the validity of the Ordinary Shares offered hereby will be passed upon for the
Company by Maples and Calder, George Town, Grand Cayman, Cayman Islands,
British West Indies. Certain legal matters with respect to Bermuda law will be
passed upon for the Company by Conyers Dill & Pearman, Hamilton, Bermuda.
Certain legal matters with respect to United States law will be passed upon
for the Company by Mayer, Brown & Platt, Chicago, Illinois and for any Broker-
Dealers by Skadden, Arps, Slate, Meagher & Flom, LLP, New York, New York.
EXPERTS
The consolidated financial statements as of September 30, 1997 and 1996 and
for each of the fiscal years in the three-year period ended September 30,
1997, incorporated in this Prospectus by reference to the Company's Annual
Report on Form 10-K for the fiscal year ended September 30, 1997 have been so
incorporated herein in reliance on the reports of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
13
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses in connection with the
distribution of the securities registered hereby:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $209,239
NYSE listing fee................................................ 66,500
Accounting fees and expenses.................................... 20,000
Legal fees and expenses......................................... 100,000
Printing fees................................................... 50,000
Miscellaneous................................................... 54,261
--------
Total....................................................... $500,000
========
</TABLE>
All of the above fees, costs and expenses will be paid by the Company and,
other than the SEC registration fee and the NYSE listing fee, all fees and
expenses are estimates.
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 100 of the Company's Articles of Association, filed as Exhibit 4.2
to this Registration Statement, contains provisions with respect to
indemnification of the Company's officers and directors. Such provision
provides that the Company shall indemnify, in accordance with and to the full
extent now or hereafter permitted by law, any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (including, without limitation, an action by or in the right of
the Company), by reason of his acting as a director, officer, employee or
agent of, or his acting in any other capacity for or on behalf of, the
Company, against any liability or expense actually and reasonably incurred by
such person in respect thereof. The Company may also advance the expenses of
defending any such act, suit or proceeding in accordance with and to the full
extent now or hereafter permitted by law. Such indemnification and advancement
of expenses are not exclusive of any other right to indemnification or
advancement of expenses provided by law or otherwise.
The Companies Law (Revised) of the Cayman Islands does not set out any
specific restrictions on the ability of a company to indemnify officers or
directors. However, the application of basic principles and certain
Commonwealth case law which is likely to be persuasive in the Cayman Islands
would indicate that indemnification is generally permissible except in the
event that there had been fraud or wilful default on the part of the officer
or director or reckless disregard of his duties and obligations to the
company.
Directors and officers of the Company are also provided with indemnification
against certain liabilities pursuant to a directors and officers liability
insurance policy. Coverage is afforded for any loss that the insureds become
legally obligated to pay by reason of any claim or claims first made against
the insureds or any of them during the policy period from any wrongful acts
that are actually or allegedly caused, committed or attempted by the insureds
prior to the end of the policy period. Wrongful acts are defined as any actual
or alleged error, misstatement, misleading statement or act, omission, neglect
or breach of duty by the insureds while acting in their individual or
collective capacities as directors or officers of the Company, or any other
matter claimed against them by reason of their being directors or officers of
the Company. Certain of the Company's directors are provided, by their
employer, with indemnification against certain liabilities incurred as
directors of the Company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
See Exhibit Index included herewith which is incorporated herein by
reference.
II-1
<PAGE>
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Company's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the provisions set forth or described in Item 15 of
this Registration Statement, or otherwise, the registrant has been informed
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by a registrant of expenses
incurred or paid by a director, officer or controlling person of such
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrants will, unless in the opinion
of their counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby further undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(d) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(A) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(B) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration statement;
(C) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
Provided, however, that paragraphs (1)(A) and (1)(B) do not apply if
the registration statement is on Form S-3, Form S-8 or Form S-3, and
the information required to be included in a post-effective
II-2
<PAGE>
amendment by those paragraphs is contained in periodic reports filed
with or furnished to the Commission by the registrants pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-3
<PAGE>
SIGNATURES
EACH PERSON WHOSE SIGNATURE APPEARS BELOW CONSTITUTES AND APPOINTS BRIAN
DUPERREAULT, CHRISTOPHER Z. MARSHALL, PETER N. MEAR AND KEITH P. WHITE AND
EACH OF THEM, THE TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS OF THE
UNDERSIGNED, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION, FOR AND IN
THE NAME, PLACE AND STEAD OF THE UNDERSIGNED, IN ANY AND ALL CAPACITIES, TO
SIGN ANY AND ALL AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) TO THIS
REGISTRATION STATEMENT, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND
OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE
COMMISSION, AND HEREBY GRANTS TO SUCH ATTORNEYS-IN-FACT AND AGENTS, AND EACH
OF THEM, FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND
THING REQUISITE AND NECESSARY TO BE DONE, TO ALL INTENTS AND PURPOSES AS THE
UNDERSIGNED MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL
THAT SAID ATTORNEYS-IN-FACT AND AGENTS, OR ANY OF THEM, OR THEIR OR HIS
SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE
HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, ACE LIMITED
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN HAMILTON, BERMUDA, ON MARCH 30, 1998.
ACE Limited
Brian Duperreault
By: _________________________________
Name: Brian Duperreault
Title: Chairman, President
and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON MARCH 30, 1998.
<TABLE>
<CAPTION>
SIGNATURE POSITION
--------- --------
<S> <C>
Brian Duperreault Chairman, President and Chief
___________________________________________ Executive Officer; Director
Brian Duperreault
Christopher Z. Marshall Chief Financial Officer (Principal
___________________________________________ Financial and Accounting Officer)
Christopher Z. Marshall
Donald Kramer Vice Chairman; Director
___________________________________________
Donald Kramer
Michael G. Atieh Director
___________________________________________
Michael G. Atieh
Bruce L. Crockett Director
___________________________________________
Bruce L. Crockett
</TABLE>
II-4
<PAGE>
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<CAPTION>
SIGNATURE POSITION
--------- --------
<S> <C>
Director
___________________________________________
Jeffrey W. Greenberg
Meryl D. Hartzband Director
___________________________________________
Meryl D. Hartzband
Director
___________________________________________
Robert M. Hernandez
Peter Menikoff Director
___________________________________________
Peter Menikoff
Thomas J. Neff Director
___________________________________________
Thomas J. Neff
Glen M. Renfrew Director
___________________________________________
Glen M. Renfrew
Director
___________________________________________
Robert Ripp
Walter A. Scott Director
___________________________________________
Walter A. Scott
Dermot F. Smurfit Director
___________________________________________
Dermot F. Smurfit
Director
___________________________________________
Robert W. Staley
Gary M. Stuart Director
___________________________________________
Gary M. Stuart
Sidney F. Wentz Director
___________________________________________
Sidney F. Wentz
</TABLE>
II-5
<PAGE>
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed below by the undersigned as the duly
authorized representative of the registrant in the United States.
Brian Duperreault
Date: March 30, 1998 -------------------------------------
Brian Duperreault
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- --------------------
<C> <S> <C>
1.1 Form of Underwriting Agreement*
2.1 Stock Purchase Agreement, dated as of March 25, 1998 by and
among the Company, CAT and the Selling Shareholders
4.1 Memorandum of Association of the Company (incorporated by
reference to Exhibit 3.1 to the Registration Statement on Form
S-1 of the Company (No. 33-57206))
4.2 Amended and Restated Articles of Association of the Company
(incorporated by reference to Exhibit 3.2 to the Registration
Statement on Form S-1 of the Company (No. 33-57206))
4.3 Special resolution of the shareholders of the Company,
effective March 2, 1998, amending Article 6 of the Company's
Memorandum of Association and Article 4(a) of the Company's
Amended and Restated Articles of Association
4.4 Special resolution of the shareholders of the Company,
effective March 2, 1998, amending Article 33 of the Company's
Amended and Restated Articles of Association
4.5 Specimen certificate representing Ordinary Shares
(incorporated by reference to Exhibit 4.3 to the Registration
Statement on Form S-1 of the Company (No. 33-57206))
5.1 Opinion of Maples and Calder as to the legality of the
Ordinary Shares
8.1 Opinion of Maples & Calder as to certain Cayman Islands tax
matters
8.2 Opinion of Mayer, Brown & Platt as to certain U.S. tax matters
8.3 Opinion of Conyers Dill & Pearman as to certain Bermuda tax
matters
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consents of Maples and Calder (included in its opinions filed
as Exhibits 5.1 and 8.1)
23.3 Consent of Mayer, Brown & Platt (included in its opinion filed
as Exhibit 8.2)
23.4 Consent of Conyers Dill & Pearman (included in its opinion
filed as Exhibit 8.3)
24.1 Powers of Attorney (included in signature pages)
99.1 Appointment of CT Corporation System as U.S. agent for service
of process (incorporated by reference to Exhibit 99.1 to
Registration Statement on Form S-1 (No. 33-72118))
99.2 Confirmation of appointment of CT Corporation System as U.S.
agent for service of process
</TABLE>
* To be filed by amendment.
<PAGE>
Exhibit 2.1
==============================================================
STOCK PURCHASE AGREEMENT
dated as of March 25, 1998
by and among
ACE LIMITED,
a Cayman Islands company,
CAT LIMITED,
a Bermuda company limited by shares,
and
THE SHAREHOLDERS OF CAT LIMITED LISTED HEREIN
==============================================================
<PAGE>
TABLE OF CONTENTS
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Page
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ARTICLE I CERTAIN DEFINITIONS
SECTION 1.01 Certain Definitions......................................... 2
ARTICLE II STOCK PURCHASE AND SALE
SECTION 2.01 Purchase and Sale of Shares................................. 7
SECTION 2.02 Closing..................................................... 7
SECTION 2.03 Consideration............................................... 7
SECTION 2.04 Delivery of Shares by Sellers; Payment...................... 8
SECTION 2.05 Net Book Value Adjustment................................... 8
SECTION 2.06 Material Adverse Effect..................................... 10
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLERS
SECTION 3.01 Corporate Organization...................................... 12
SECTION 3.02 Authority................................................... 12
SECTION 3.03 Capital Structure........................................... 13
SECTION 3.04 Subsidiaries................................................ 14
SECTION 3.05 Financial Statements........................................ 14
SECTION 3.06 Absence of Certain Changes.................................. 15
SECTION 3.07 Certain Fees................................................ 15
SECTION 3.08 No Defaults................................................. 15
SECTION 3.09 Governmental Consents....................................... 16
SECTION 3.10 Compliance with Applicable Law.............................. 16
SECTION 3.11 Derivatives................................................. 16
SECTION 3.12 Contracts................................................... 16
SECTION 3.13 Taxes....................................................... 18
SECTION 3.14 Litigation.................................................. 19
SECTION 3.15 Title to Properties; Leases................................. 19
SECTION 3.16 Certain Agreements.......................................... 19
SECTION 3.17 U.S. Assets................................................. 20
SECTION 3.18 Employees................................................... 20
SECTION 3.19 Intellectual Property....................................... 21
SECTION 3.20 Takeover Statutes........................................... 21
SECTION 3.21 Environmental Matters....................................... 21
SECTION 3.22 Insurance Matters........................................... 22
</TABLE>
<PAGE>
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SECTION 3.23 Liabilities and Reserves.................................... 23
SECTION 3.24 Spin-Off of Enterprise...................................... 23
SECTION 3.25 Acquisition of Hamilton..................................... 23
SECTION 3.26 Interested Party Transactions............................... 23
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE SELLERS
SECTION 4.01 Ownership of Shares......................................... 24
SECTION 4.02 Organization of Certain Sellers............................. 24
SECTION 4.03 Authority................................................... 24
SECTION 4.04 No Defaults................................................. 24
SECTION 4.05 Consents and Approvals...................................... 25
SECTION 4.06 Certain Fees................................................ 25
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
SECTION 5.01 Corporate Organization...................................... 25
SECTION 5.02 Authority................................................... 25
SECTION 5.03 Governmental Consents....................................... 26
SECTION 5.04 Financing................................................... 26
SECTION 5.05 Investment.................................................. 26
SECTION 5.06 Litigation.................................................. 26
SECTION 5.07 No Defaults................................................. 26
SECTION 5.08 Certain Fees................................................ 27
ARTICLE VI COVENANTS
SECTION 6.01 Conduct of Business......................................... 27
SECTION 6.02 Public Announcements........................................ 30
SECTION 6.03 Termination and Waiver of Certain Arrangements.............. 30
SECTION 6.04 Indemnification; Insurance.................................. 31
SECTION 6.05 Access to Information....................................... 31
SECTION 6.06 Reasonable Best Efforts..................................... 32
SECTION 6.07 Spin-Off.................................................... 32
SECTION 6.08 Option Agreement............................................ 32
SECTION 6.09 Acquisition of Hamilton..................................... 32
SECTION 6.10 Employee Benefits........................................... 33
SECTION 6.11 Taxes....................................................... 33
ARTICLE VII
CONDITIONS TO THE CLOSING
SECTION 7.01 General Conditions.......................................... 34
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<S> <C>
SECTION 7.02 Conditions to the Company's and the Sellers' Obligations.... 34
SECTION 7.03 Conditions to the Purchaser's Obligation.................... 35
ARTICLE VIII INDEMNIFICATION
SECTION 8.01 Survival of Representations, Warranties and Covenants....... 36
SECTION 8.02 Obligations of Seller....................................... 36
SECTION 8.03 Obligations of the Purchaser................................ 37
SECTION 8.04 Procedure................................................... 37
SECTION 8.05 Exclusivity................................................. 38
SECTION 8.06 Subrogation................................................. 38
ARTICLE IX TERMINATION
SECTION 9.01 Termination................................................. 38
SECTION 9.02 Procedure and Effect of Termination......................... 39
ARTICLE X MISCELLANEOUS PROVISIONS
SECTION 10.01 Amendment and Modification.................................. 39
SECTION 10.02 Waiver of Compliance; Consents.............................. 39
SECTION 10.03 Severability and Validity................................... 39
SECTION 10.04 Expenses and Obligations; No Right to Set-Off............... 40
SECTION 10.05 Parties in Interest......................................... 40
SECTION 10.06 Additional Agreements....................................... 40
SECTION 10.07 Notices..................................................... 40
SECTION 10.08 Governing Law............................................... 41
SECTION 10.09 Consent to Jurisdiction; Jury Trial; Venue.................. 41
SECTION 10.10 Counterparts................................................ 42
SECTION 10.11 Headings.................................................... 42
SECTION 10.12 Release of Claims........................................... 42
SECTION 10.13 Entire Agreement; Assignment................................ 42
</TABLE>
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into
this 25th day of March, 1998 by and among ACE Limited, a Cayman Islands company
(the "Purchaser"), CAT Limited, a Bermuda company limited by shares (the
"Company"), and the shareholders of the Company listed in Exhibit A hereto (the
"Sellers").
WHEREAS, the Sellers are the owners of all of the Company's issued and
outstanding Common Shares, par value $1.00 per share (the "Shares").
WHEREAS, on the terms and subject to the conditions of this Agreement, the
Sellers desire to sell, and the Purchaser desires (either directly or through
one or more of its Subsidiaries) to purchase, all of the Sellers' right, title
and interest in and to the Shares.
WHEREAS, prior to the date of this Agreement, the board of directors of the
Company has declared a dividend to distribute to its shareholders and certain
employees all shares of capital stock of Enterprise Reinsurance Holdings
Corporation ("Enterprise"), and possibly a de minimis amount of cash in lieu of
shares or fractions thereof of Enterprise, held by the Company not previously
delivered to such Persons upon the exercise of options or other contractual
rights held by them (such distribution, option exercises and cash payments are
together referred to herein as the "Spin-Off") and immediately prior to the
Closing (as defined herein) the Company shall have consummated the Spin-Off.
WHEREAS, as a condition and inducement to Purchaser entering into this
Agreement and incurring the obligations set forth herein, Purchaser and certain
other parties have agreed, subject to certain conditions, to enter into the
Option Agreement, substantially in the form of Exhibit B hereto, pursuant to
which, among other things, such other parties have granted to the Purchaser the
option to purchase twenty-nine (29%) percent (or 290,000 shares) of the total
issued and outstanding capital stock of Enterprise.
WHEREAS, as a condition and inducement to Purchaser entering into this
Agreement and incurring the obligations set forth herein, concurrently with the
execution and delivery of this Agreement, each of the Option Holders (as defined
herein), have executed and delivered to the Company a letter, in the form of
Exhibit C-1 hereto, pursuant to which, among other things, the Option Holders
have agreed to the cancellation of their options to purchase Shares in
consideration of the payment set forth herein.
WHEREAS, as a condition and inducement to Purchaser entering into this
Agreement and incurring the obligations set forth herein, concurrently with the
execution and delivery of this Agreement, each of the Equity Award Unit Holders
(as defined herein) have executed and delivered to the Company a letter, in the
form of Exhibit C-2 hereto, pursuant to which, among other things,
<PAGE>
the Equity Award Unit Holders have agreed to the cancellation of their equity
award units in consideration of the payment set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations, warranties and agreements contained in this
Agreement, the parties to this Agreement agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
SECTION 1.01 Certain Definitions. Certain capitalized terms used in this
Agreement shall have the meaning set forth below:
"Adjusted Year-End Net Book Value" means $407,067,506.
"Affiliate" of a party means any Person or entity controlling, controlled
by, or under common control with such party. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise.
"Agreement" has the meaning set forth in the Recitals to this Agreement.
"Arbitrator" has the meaning set forth in Section 2.05(a).
"Business Day" means any day other than a Saturday, a Sunday, or a bank
holiday in the Cayman Islands, Bermuda or in the state of New York in the United
States of America.
"Catastrophe" means any event occurring after the date hereof and on or
prior to the Closing Date that would reasonably be expected to be designated to
be a "catastrophe" by the Property Claims Services Group, Inc. or Sigma, a
publication of Swiss Reinsurance Company.
"Closing" has the meaning set forth in Section 2.02.
"Closing Balance Sheet" has the meaning set forth in Section 2.05(a).
"Closing Date" has the meaning set forth in Section 2.02.
"Closing Net Book Value" has the meaning set forth in Section 2.05(a).
"Code" means the United States Internal Revenue Code of 1986, as amended.
<PAGE>
"Company" has the meaning set forth in the Recitals to this Agreement.
"Company Actuarial Analyses" has the meaning set forth in Section 3.22(b).
"Company Liabilities" has the meaning set forth in Section 3.05(c).
"Company Options" has the meaning set forth in Section 3.03(a).
"Confidentiality Letter" means collectively the confidentiality letters
between the Purchaser and the Company, dated February 25, 1998 and March 6,
1998.
"Consent" has the meaning set forth in Section 3.09.
"Contract" has the meaning set forth in Section 3.12(a).
"D&O Insurance" has the meaning set forth in Section 6.04(b).
"Derivative Financial Instruments" has the meaning set forth in Section
3.11.
"Determination Date" has the meaning set forth in Section 2.05(c).
"Disclosure Letter" means the letter, dated as of the date hereof, from the
Company to the Purchaser regarding certain matters related to this Agreement.
"Dollars" or "$" means United States dollars.
"Employee Benefit Plan" means each benefit plan maintained or contributed
to by the Company or with respect to which the Company may have any liability,
which provides (or is intended to provide) benefits to the employees of the
Company (or other service providers to the Company), including, without
limitation, each pension, retirement or deferred compensation plan, incentive
compensation plan, stock plan, unemployment compensation plan, vacation pay,
severance pay, bonus or benefit arrangement, insurance, medical or
hospitalization program, sickness, accident, disability or death benefit program
or any other fringe benefit arrangement.
"Enterprise" has the meaning set forth in the Recitals to this Agreement.
"Enterprise Financial Statements" has the meaning set forth in Section
3.05(a).
"Enterprise Stockholders' Agreement" means the Stockholders' Agreement
dated as of January 17, 1997, as amended, among the Company, Enterprise, Morgan
Stanley, Dean Witter, Discover & Co. (as successor to Morgan Stanley Group
Inc.), Employers Reinsurance Corporation, The Chubb Corporation and the Persons
identified on the signature pages thereof.
3
<PAGE>
"Enterprise Stockholders' Agreement Amendment" has the meaning set forth in
Section 6.08.
"Environmental Law" means any Law which relates to or otherwise imposes
liability or standards of conduct concerning discharges, emissions, releases or
threatened releases of noises, odors or any pollutants, contaminants or
hazardous or toxic wastes, substances or materials, whether as matter or energy,
into ambient air, water, or land, or otherwise relating to the manufacture,
processing, generation, distribution, use, treatment, storage, disposal,
cleanup, transport or handling of pollutants, contaminants, or hazardous or
toxic wastes, substances or materials.
"Equity Award Unit Holder" means the individuals or entities listed under
the heading "Equity Award Unit Holder" on Exhibit G hereto.
"Escrow Agent" means The Bank of New York or such other entity reasonably
acceptable to the parties hereto, as escrow agent under the Escrow Agreement.
"Escrow Agreement" means the escrow agreement substantially in the form of
Exhibit D hereto.
"Escrow Amount" means the sum of (i) $20 million, (ii) any additional
amounts pursuant to Section 2.03(c), and (iii) any additional amounts pursuant
to Section 2.06.
"Exchange Act" means the United States Securities Exchange Act of 1934, as
amended.
"Financial Statements" has the meaning set forth in Section 3.05(a).
"GAAP" means generally accepted accounting principles as in effect in the
United States of America (as such principles may change from time to time).
"Governmental Authority" means any governmental, quasi-governmental,
judicial, or regulatory agency or entity or subdivision thereof with
jurisdiction over the Company, the Sellers or the Purchaser or any of their
respective Subsidiaries or any of the transactions contemplated by this
Agreement.
"Hamilton" has the meaning set forth in Section 3.25.
"Indemnified Parties" has the meaning set forth in Section 6.04(a).
"Initial Payment" has the meaning set forth in Section 2.03(b).
"Instrument" has the meaning set forth in Section 5.07.
4
<PAGE>
"Intellectual Property" has the meaning set forth in Section 3.19.
"Latest Balance Sheet" has the meaning set forth in Section 3.05(c).
"Law" means any law, statute, regulation, ordinance, rule, order, decree,
judgment, consent decree, settlement agreement or governmental requirement
enacted, promulgated, entered into, agreed or imposed by any Governmental
Authority.
"Lien" means any mortgage, lien, security interest, pledge, lease or other
charge or encumbrance of any kind, including, without limitation, the lien or
retained security title of a purchase money creditor or conditional vendor, and
any easement, right-of-way or other encumbrance on title to real property, and
any agreement to give any of the foregoing.
"Loss" or "Losses" means any and all losses, liabilities, costs, Taxes,
penalties, fines and expenses (including reasonable expenses for attorneys,
accountants, consultants and experts), damages, obligations to third parties,
expenditures, proceedings, judgments, settlements, awards or demands that are
imposed upon or otherwise incurred, suffered or sustained by the relevant party.
"Material Adverse Effect" has the meaning set forth in Section 2.06.
"Minister" has the meaning set forth in Section 3.09.
"Net Book Value Difference" has the meaning set forth in Section 2.05(c).
"Net Book Value Increase" has the meaning set forth in Section 2.05(c).
"Net Book Value Shortfall" has the meaning set forth in Section 2.05(c).
"Non-Third Party Claim" has the meaning set forth in Section 8.04(d).
"Option Holder" means the individuals or entities listed under the heading
"Option Holder" on Exhibit G hereto.
"Option Shares" has the meaning set forth in the Option Agreement attached
hereto as Exhibit B hereto.
"Permits" means all permits, authorizations, approvals, registrations,
licenses, certificates or variances granted by or obtained from any federal,
state, local or foreign governmental, administrative or regulatory authority.
5
<PAGE>
"Permitted Liens" means (i) Liens for Taxes or other assessments or charges
of Governmental Authorities that are not yet delinquent or that are being
contested in good faith by appropriate proceedings, in each case, with respect
to which adequate reserves or other appropriate provisions are being maintained
to the extent required by GAAP; (ii) statutory Liens of landlords and mortgagees
of landlords and Liens of carriers, warehousemen, mechanics, materialmen and
other Liens imposed by law and created in the ordinary course of business for
amounts not yet more than thirty (30) days overdue or which are being contested
in good faith by appropriate proceedings, in each case, with respect to which
adequate reserves or other appropriate provisions are being maintained to the
extent required by GAAP; (iii) leases or subleases, easements, rights-of-way,
other Liens, covenants and consents which do not interfere materially with the
ordinary conduct of the business of the Company or detract materially from the
value of the property to which they attach or materially impair the use thereof
to the Company; and (iv) Liens granted by the Company to lenders pursuant to
credit agreements in existence on the date hereof.
"Person" shall mean an individual, corporation, limited liability company,
partnership, association, trust, unincorporated organization or other entity.
"Per Share Price" means the quotient of (A) the Initial Payment divided by
(B) 2,431,583.
"Proceeding" means any action, suit, demand, claim or legal,
administrative, arbitration or other alternative dispute resolution proceeding,
hearing or investigation.
"Purchase Option" has the meaning set forth in the Option Agreement
attached hereto as Exhibit B.
"Purchase Price" has the meaning set forth in Section 2.03(a).
"Purchaser" has the meaning set forth in the Recitals to this Agreement.
"Purchaser Ancillary Agreements" has the meaning set forth in Section 5.02.
"Purchaser Indemnified Parties" has the meaning set forth in Section 8.02.
"Real Property" has the meaning set forth in Section 3.15.
"Schedule 3.12(b) Contract" has the meaning set forth in Section 3.12(c).
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the United States Securities Act of 1933, as
amended.
"Seller Ancillary Agreements" has the meaning set forth in Section 4.03.
6
<PAGE>
"Seller Indemnified Parties" has the meaning set forth in Section 8.03.
"Sellers" has the meaning set forth in the Recitals to this Agreement.
"Sellers Representative" has the meaning set forth in Section 2.05(a).
"Shareholders' Agreement" has the meaning set forth in Section 3.08.
"Shares" has the meaning set forth in the Recitals to this Agreement.
"Spin-Off" has the meaning set forth in the Recitals to this Agreement
"Subsidiary" means, with respect to a specified Person, each corporation,
partnership or other entity in which the specified Person owns or controls,
directly or indirectly through one or more intermediaries, fifty percent (50%)
or more of the stock or other interests having general voting power in the
election of directors or Persons performing similar functions or rights to fifty
percent (50%) or more of any distributions. For purposes of this definition, (i)
Hamilton shall be deemed a Subsidiary of the Company and (ii) Enterprise and its
Subsidiaries shall not be deemed Subsidiaries of the Company.
"Tax" or "Taxes" means any Bermuda, United States federal, state, local,
foreign or other income, capital stock, employees' income withholding, foreign
Person withholding, social security, unemployment, disability, real property,
personal property, sales, use, transfer or other tax, including any interest,
penalties or other additions to tax in respect to the foregoing, whether
disputed or not.
"Third Party Claim" has the meaning set forth in Section 8.04(a).
"Voting Debt" has the meaning set forth in Section 3.03(b).
ARTICLE II
STOCK PURCHASE AND SALE
SECTION 2.01 Purchase and Sale of Shares. Upon the terms and subject to the
conditions of this Agreement, at the Closing each Seller shall convey, assign,
transfer and deliver to the Purchaser, and the Purchaser shall acquire and
accept from each Seller, all of such Seller's right, title and interest in and
to the Shares.
SECTION 2.02 Closing. Subject to the satisfaction of the conditions to
closing set forth in Article VII of this Agreement, the closing of the purchase
and sale of the Shares (the "Closing") shall be held at the offices of Appleby,
Spurling & Kempe, Cedar House, 41 Cedar Avenue, Hamilton HM12, Bermuda or such
other place as the parties shall agree at 9:00 a.m. on April 1,
7
<PAGE>
1998, or at such other time or on such other date as the parties to this
Agreement shall agree (the "Closing Date").
SECTION 2.03 Consideration. (a) In consideration of the transfer of the
Shares to the Purchaser in accordance with this Agreement, the Purchaser shall
pay to the Sellers the sum of $640,851,461 (the "Purchase Price"), as such
amount may be adjusted pursuant to Section 2.05.
(b) On the Closing Date, the Purchaser shall (i) pay to the Sellers an
amount of cash (the "Initial Payment") equal to $640,851,461 less 84.0033856% of
the Escrow Amount and (ii) deposit in escrow with the Escrow Agent the Escrow
Amount.
(c) If the Closing does not occur on or before April 22, 1998 due solely to
the failure by the Company or the Sellers to satisfy their respective
obligations set forth in Section 7.03 of this Agreement, the Escrow Amount shall
be increased by $10,000,000.
(d) On the Closing Date, the Company shall pay to each Equity Award Unit
Holder and Option Holder an amount of cash equal to (A) the product of (i) the
number of equity award units or options, as the case may be, set forth opposite
such holder's name on Exhibit G hereto and (ii) the Per Share Price, minus (B)
the aggregate base price or option price, as the case may be, set forth opposite
such holder's name on Exhibit G hereto. Such amount shall be paid by wire
transfer of immediately available funds to the accounts designated in writing by
each Equity Award Unit Holder and Option Holder three Business Days prior to the
Closing Date.
(e) The Initial Payment shall be allocated among the Sellers in proportion
to their respective holdings of Shares as set forth in Exhibit A hereto.
SECTION 2.04 Delivery of Shares by Sellers; Payment. (a) At the Closing,
each Seller shall deliver to the Purchaser one or more certificates
representing, in the aggregate, the number of Shares set forth opposite the name
of such Seller in Exhibit A hereto plus any additional Shares acquired prior to
Closing as a result of the exercise of any stock option, duly endorsed in blank
for transfer or accompanied by duly executed stock powers, signatures
guaranteed, in form reasonably acceptable to the Purchaser and its counsel.
(b) At the Closing, the Purchaser shall (i) deliver to the Escrow Agent the
Escrow Amount and (ii) pay by wire transfer in immediately available funds to
the account designated in writing by each Seller three Business Days prior to
the Closing Date such Seller's portion of the Initial Payment as set forth in
Section 2.03(b).
SECTION 2.05 Net Book Value Adjustment. (a) Subject to Section 2.05(b)
below, as promptly as practicable, but no later than 25 days after the Closing
Date, the Company shall cause to be prepared and delivered to The Morgan Stanley
Leveraged Equity Fund II, L.P., as representative of the Sellers (the "Sellers
Representative"), the balance sheet of the Company as of
8
<PAGE>
the Closing Date (the "Closing Balance Sheet"). The Purchaser and the Sellers
shall use reasonable best efforts to cause Coopers & Lybrand LLP and Ernst &
Young LLP to cooperate with the Company in preparation of the Closing Balance
Sheet. As promptly as practicable, but no later than 30 days after receipt by
the Sellers Representative of the Closing Balance Sheet, the Sellers
Representative shall cause Ernst & Young LLP to deliver to the Purchaser a
report thereon, together with a certificate based on such Closing Balance Sheet
setting forth the Sellers' calculation of the net book value of the Company as
of the Closing Date, adjusted (to the extent not already so reflected in the
Closing Balance Sheet) to reflect the following (as so adjusted, the "Closing
Net Book Value"): (i) the Spin-Off and (ii) the reduction in net book value
equal to (A) the expenses and fees of legal counsel, accountants, investment
bankers or other representatives or consultants payable by the Company in
connection with this Agreement and the consummation of the transactions
contemplated hereby, (B) the amount of cash paid to the Equity Award Unit
Holders and Option Holders pursuant to Section 2.03(d), (C) the Company's losses
(net of recoveries) and loss adjustment expenses attributable to a Catastrophe,
and (D) the amount owed to Thomas Hutton in connection with the consummation of
the transactions contemplated by this Agreement; provided, that, no amounts paid
or payable to Equity Award Unit Holders or Options Holders pursuant to Section
2.05(c) shall be deducted from net book value to arrive at Closing Net Book
Value and if any such amounts have been so deducted, such amounts shall be added
back in determining Closing Net Book Value. The Closing Balance Sheet shall (i)
be prepared in accordance with GAAP applied on a basis consistent with that used
in the preparation of the Latest Balance Sheet, (ii) include line items
(including the constituent components thereof) consistent with those in the
Latest Balance Sheet, (iii) be prepared in accordance with the accounting
policies and practices consistent with those used in preparation of the Latest
Balance Sheet; provided, that, except as set forth in Section 2.05 of the
Disclosure Letter, the Latest Balance Sheet complied as to form in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto and absent manifest error.
Unless the Purchaser, within 20 Business Days after delivery to the Purchaser of
the certificate setting forth the Closing Net Book Value, notifies Sellers
Representative in writing that Purchaser objects to the Closing Balance Sheet
and the Closing Net Book Value, and specifies the basis for such objection, such
Closing Net Book Value shall become final and binding upon the parties for
purposes of this Section 2.05. Purchaser shall be deemed to have agreed with all
aspects of the determination of the Closing Net Book Value not identified and
objected to in such written notice. If Purchaser and the Sellers Representative
are unable to resolve all of Purchaser's objections within 25 Business Days
after any such notification has been given, all remaining matters in dispute
shall be submitted to Arthur Andersen LLP, or if Arthur Andersen LLP is not
available, another nationally or regionally recognized public accounting firm
mutually agreed upon by Purchaser and the Sellers Representative. In the event
the Sellers Representative and Purchaser are unable to agree upon the selection
of such an accounting firm within five Business Days after expiration of such
25-Business Day period, each party shall select an accounting firm and provide
written notice of such appointment to the other party. The two appointed
accounting firms shall appoint a third accounting firm as soon as practicable
(the "Arbitrator"). Such accounting firm or Arbitrator, as the case may be,
shall consider only those items and amounts which are identified by the
Purchaser and Sellers Representative as items which such parties are unable to
resolve. The
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resolution of such disagreements and the determination of the Closing Net Book
Value by such accounting firm or Arbitrator, as the case may be, shall be
conclusive and binding on Purchaser and Sellers. Such determination shall be in
writing, certified to each of the Purchaser and the Sellers Representative and
shall be delivered to each of the parties. Purchaser and Sellers agree to
cooperate with each other and with each other's authorized representatives in
order to resolve any and all matters in dispute as soon as practicable.
(b) If there shall have been a Catastrophe, the date upon which the Company
shall cause to be prepared and delivered to the Sellers Representative the
Closing Balance Sheet, as set forth in Section 2.05(a) above, shall be the date
which is as soon as practicable after the determination of the Company's losses,
net of recoveries, and loss adjustment expenses attributable to such
Catastrophe; provided, that, if such losses and loss adjustment expenses have
not been determined within three months of the Closing Date the parties shall
retain a nationally recognized actuarial firm mutually agreed upon by Purchaser
and the Sellers Representative to estimate such losses and loss adjustment
expenses. In the event the Sellers Representative and Purchaser are unable to
agree upon the selection of such actuarial firm within five Business Days after
such 3 month period the parties will follow the mechanism for the selection of
an accounting firm as set forth in Section 2.05(a) above. The estimation of such
losses and loss adjustment expenses by such actuarial firm shall be conclusive
and binding on Purchaser and Sellers. Such determination shall be in writing,
certified to each of the Purchaser and the Sellers Representative and shall be
delivered to each of the parties.
(c) If the Closing Net Book Value is:
(i) greater than the Adjusted Year-End Net Book Value, within three
Business Days after the Closing Net Book Value has been finally determined
(the "Determination Date"):
(A) an amount equal to the lesser of the Escrow Amount (together with
interest thereon as specified in the Escrow Agreement) or such
excess (the difference between the Escrow Amount and such excess
being referred to herein as the "Net Book Value Difference")
shall be disbursed from escrow in cash by wire transfer of
immediately available funds to the Sellers, Equity Award Unit
Holders and Option Holders in the manner set forth in the Escrow
Agreement; such amount shall be allocated between such Persons
based on the percentage set forth opposite their names on
Exhibit A to the Escrow Agreement, and
(B) if the Closing Net Book Value is greater than the Adjusted Year-
End Net Book Value by an amount that exceeds the Escrow Amount,
Purchaser shall pay such excess (not to exceed $20 million,
unless the Escrow Amount has been increased pursuant to Section
2.03(c), in which case such amount will not exceed $30 million)
(the "Net Book Value Increase") in cash by wire transfer of
immediately available funds to the Sellers, Equity Award Unit
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Holders and Option Holders. Such payment shall be allocated among
such Persons based on the percentage set forth opposite their
names on Exhibit H hereto.
(ii) less than or equal to the Adjusted Year-End Net Book Value (the
"Net Book Value Shortfall"), then the Escrow Amount (together with interest
thereon as specified in the Escrow Agreement) shall be disbursed in cash by
wire transfer of immediately available funds to Purchaser in the manner set
forth in the Escrow Agreement, it being understood that Sellers'
obligations under this Section 2.05(c)(ii) shall be limited to the Escrow
Amount.
(d) Purchaser, on the one hand, and Sellers (through an adjustment to the
Closing Balance Sheet) on the other, each shall bear one-half of the fees, costs
and expenses of the accounting firm retained to resolve any objection under
subsection (a) above.
SECTION 2.06 Material Adverse Effect. (a) For purposes of this Agreement, a
"Material Adverse Effect" means with respect to the Company or any Seller (as
the case may be), any change (or event, condition or development) that is or may
reasonably be expected to be materially adverse to (i) the business, results of
operations or financial or operating condition of the Company and its
Subsidiaries, taken as a whole (without giving effect to the consequences of the
transactions contemplated by this Agreement), or (ii) the ability of the Company
or such Seller (and, to the extent applicable, its Subsidiaries) to perform its
(or their) obligations under this Agreement or consummate the transactions
contemplated by this Agreement. Any reference to a "Material Adverse Effect on
the Company" in the representations and warranties made by the Company and the
Sellers as to Enterprise and its Subsidiaries in Sections 3.01, 3.05, 3.10 and
3.14, shall, for the purposes of such representations and warranties, mean a
Material Adverse Effect on the Company and its Subsidiaries and Enterprise and
its Subsidiaries, taken as a whole. Notwithstanding anything to the contrary in
this Section 2.06, a Material Adverse Effect shall not include any change (or
event, condition or development):
(i) caused by changes in general economic or securities market
conditions or that affects the insurance or reinsurance industry in
general, provided, that, if the Closing does not occur on or before April
22, 1998 due solely to the failure of the Company or Sellers to satisfy the
conditions to the Purchaser's obligations set forth in Section 7.03 of this
Agreement, a Material Adverse Effect may include any change (or event,
condition or development) occurring at any time prior to the Closing Date
caused by changes in general economic or securities market conditions or
that affects the insurance or reinsurance industry in general; or
(ii) resulting from a single Catastrophe that is reasonably expected
to cause Losses to the Company, net of recoveries, to the Company of less
than $65,000,000; provided, that, if the amount of such Losses to the
Company, net of recoveries, estimated by Purchaser reasonably and in good
faith is in excess of $20,000,000 and less than $65,000,000, the
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amount deposited in escrow at the Closing by Purchaser shall be increased,
on a dollar to dollar basis, by the amount of such Losses to the Company,
net of recoveries, in excess of $20,000,000 and less than $65,000,000.
(b) Notwithstanding anything to the contrary, if all conditions to
closing set forth in Article VII have been satisfied or waived except for the
condition to closing set forth in Section 7.03(d), Purchaser shall notify
Sellers Representative whether Purchaser is prepared, in its sole discretion, to
consummate the Closing notwithstanding the failure of such condition to be
satisfied; provided, that, if the condition set forth in Section 7.03(d) is not
satisfied as a result of the occurrence of a Catastrophe resulting in estimated
Losses to the Company, net of recoveries, in excess of $65,000,000, Purchaser
must consummate the Closing (assuming the satisfaction of all other conditions)
if Sellers, in their sole discretion, notify Purchaser in writing that they will
consent to an increase in the amount deposited in escrow by the full amount of
such Losses to the Company, net of recoveries, in excess of $20,000,000.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLERS
The Company and each of the Sellers, severally and not jointly, represents
and warrants to the Purchaser that:
SECTION 3.01 Corporate Organization. Except as set forth in Section 3.01 of
the Disclosure Letter, each of the Company, Enterprise and their respective
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation. Except as set
forth in Section 3.01 of the Disclosure Letter, each of the Company, Enterprise
and their Subsidiaries (i) is qualified, licensed or domesticated as a foreign
corporation in all jurisdictions where such qualification, license or
domestication is required to own and operate its properties and conduct its
business in the manner and at the places presently conducted; (ii) holds all
franchises, grants, licenses, certificates, permits, consents and orders, all of
which are valid and in full force and effect, from all applicable Bermuda and
foreign regulatory authorities necessary to own and operate its properties and
to conduct its business in the manner and at the places presently conducted; and
(iii) has full power and authority (corporate and other) to own, lease and
operate its respective properties and assets and to carry on its business as
presently conducted, except where the failure to be so qualified, licensed or
domesticated, or to hold such franchises, grants, licenses, certificates
permits, consents and orders or to have such power and authority would not, when
taken together with all other such failures, reasonably be expected to have a
Material Adverse Effect on the Company. Neither the Company nor any of its
Subsidiaries is required to be authorized, qualified, licensed or domesticated
as a foreign corporation under any United States federal, state or local law
other than the laws of the Commonwealth of Puerto Rico. The Company has
furnished or made available to the Purchaser complete and correct copies of its
memorandum of association and bye-laws and the equivalent organizational
documents for each of its Subsidiaries and Enterprise and its Subsidiaries as in
effect on the date of this Agreement. Such memorandum of association, bye-laws
or other organizational documents are in full force and effect and no other
organizational documents are applicable to or binding upon the Company,
Enterprise or any of their respective Subsidiaries.
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SECTION 3.02 Authority. The Company has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated by this Agreement. The execution and delivery of this Agreement by
the Company, the performance by the Company of its obligations under this
Agreement and the consummation by the Company of the transactions contemplated
by this Agreement have been duly authorized by all necessary corporate action on
the part of the Company (including, without limitation, the approval of this
Agreement and the transactions contemplated by this Agreement by the necessary
vote of the members of the Company's Board of Directors). No other corporate
proceedings on the part of the Company are necessary for the execution, delivery
and performance of this Agreement by the Company, the performance by the Company
of its obligations under this Agreement and the consummation by the Company of
the transactions contemplated by this Agreement. This Agreement has been duly
executed and delivered by the Company and (assuming the due authorization,
execution and delivery hereof and thereof by the other parties hereto and
thereto) constitutes a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject with
respect to enforceability to the effect of bankruptcy, fraudulent conveyance,
insolvency, reorganization, moratorium, or similar laws now or hereafter
affecting the enforcement of creditors' rights generally and to the availability
of equitable remedies.
SECTION 3.03 Capital Structure. (a) As of the date hereof, the authorized
share capital of the Company consists of 4,620,000 Shares, of which 2,694,497
Shares are outstanding. The Shareholders listed in Exhibit A hereto constitute
all of the shareholders of the Company. Section 3.03(a) of the Disclosure Letter
lists each plan, arrangement or agreement pursuant to which options or equity
award units with respect to Shares may be granted or under which such options or
equity award units have been granted and are outstanding and, in the aggregate
by plan, arrangement or agreement, the number of options and equity award units
outstanding, their grant price, the date such options or rights were granted and
the number of Shares reserved for issuance pursuant to the plan, arrangement or
agreement, together with the name of each holder of an option or stock
appreciation right outstanding under any such plan, arrangement or agreement
(such options and rights being collectively referred to in this Agreement as the
"Company Options"), a description of the exercise or purchase prices, vesting
schedules, expiration dates, and numbers of Shares subject to each such Company
Option, together with a listing of all Company Options which shall vest on the
Closing Date as a result of the transactions contemplated by this Agreement. The
Company has not issued or granted any option, warrant, convertible security or
other right or agreement which affords any person the right to purchase or
otherwise acquire any Shares or any other security of the Company other than
under the Company Options.
(b) Except as described in Section 3.03(b) of the Disclosure Letter, no
bonds, debentures, notes or other indebtedness having the right to vote (or
convertible into or exercisable for securities having the right to vote) on any
matters on which shareholders may vote ("Voting Debt") of the Company are issued
or outstanding. All of the issued and outstanding securities of the Company have
been duly authorized and validly issued, are fully paid and non-assessable, and
were issued in compliance with all applicable Bermuda, United States federal,
state and other foreign laws
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regulating the offer, sale or issuance of such securities (assuming compliance
with all such laws by the persons to whom such securities were issued or sold
and by any transferee of such persons).
(c) Except as described in Sections 3.03(a), (b) or (c) of the Disclosure
Letter, there are no options, warrants, calls, rights, commitments or agreements
of any character to which the Company is a party or by which it is bound
obligating the Company to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock of the Company or any
Voting Debt of the Company or obligating the Company to grant, extend or enter
into any such option, warrant, call, right, commitment or agreement. Except as
set forth in this Agreement and on Schedule 3.03(c) of the Disclosure Letter, as
of the Closing Date, there will be no outstanding contractual obligations of the
Company to repurchase, redeem or otherwise acquire any capital stock of the
Company.
(d) Except as described in Section 3.03(d) of the Disclosure Letter or as
specifically described in this Agreement, since December 31, 1997, the Company
has not (i) made or agreed to make any stock split or stock dividend, or issued
or permitted to be issued any shares of capital stock, or securities exercisable
for or convertible into shares of capital stock, of the Company other than
pursuant to and as required by the terms of any Company Option; (ii)
repurchased, redeemed or otherwise acquired any shares of capital stock of the
Company; or (iii) declared, set aside, made or paid to the shareholders of the
Company dividends or other distributions on the outstanding shares of capital
stock of the Company.
SECTION 3.04 Subsidiaries. (a) Section 3.04(a) of the Disclosure Letter
sets forth a complete and accurate list of all of the Subsidiaries of the
Company. Section 3.04(a) of the Disclosure Letter also lists the jurisdiction of
incorporation or formation of each Subsidiary of the Company, each jurisdiction
in which such Subsidiary is licensed, qualified or otherwise authorized to
conduct business, the number of issued and outstanding shares of capital stock
of each Subsidiary and the record holder(s) thereof. Except as set forth in
Section 3.04(a) of the Disclosure Letter all of the outstanding shares of
capital stock of the Company's Subsidiaries are owned beneficially and of record
by the Company, free and clear of all Liens and other restrictions with respect
to the transferability or assignability thereof (other than restrictions on
transfer imposed by foreign, federal or state securities laws) and no capital
stock of any of its Subsidiaries is or may become required to be issued by
reason of any options, warrants, rights to subscribe to, calls or commitments of
any character whatsoever relating to, or securities or rights convertible into
or exchangeable or exercisable for, shares of capital stock of any of its
Subsidiaries and there are no contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may be bound
to issue, redeem, purchase or sell shares of Subsidiary capital stock or
securities convertible into or exchangeable or exercisable for any such shares.
Section 3.04(a) of the Disclosure Letter lists all agreements and other
instruments pursuant to which the Company or any Subsidiary is obligated or
required, under any circumstance, to make contributions to the capital of any
Subsidiary.
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(b) Except as set forth in Section 3.04(b) of the Disclosure Letter and
except for the stock of its Subsidiaries and portfolio investments made in the
ordinary course of business, there are no corporations, partnerships, business
associations, joint ventures or other entities in which the Company owns, of
record or beneficially any direct or indirect equity interest or any right
(contingent or otherwise) to acquire the same.
SECTION 3.05 Financial Statements. (a) The Company has delivered to the
Purchaser copies of its audited annual financial statements of the Company as of
December 31, 1997 and December 31, 1996 (the "Financial Statements"), copies of
which are included in Section 3.05 of the Disclosure Letter. The Company has
delivered to the Purchaser copies of the audited financial statements of
Enterprise as of September 30, 1997 (the "Enterprise Financial Statements"),
consisting of balance sheets as of such date and the related statement of income
for the period then ended, copies of which are included in Section 3.05 of the
Disclosure Letter.
(b) Except as set forth in Section 3.05 of the Disclosure Letter, the
Financial Statements and the Enterprise Financial Statements were prepared in
accordance with GAAP applied on a consistent basis and present fairly the
financial position of the Company and Enterprise, respectively, as of the dates
thereof and the results of operations of the Company and Enterprise,
respectively, for the periods then ended, except as may be noted therein.
(c) Except as set forth in Section 3.05 of the Disclosure Letter, or in
the Company's balance sheet dated as of December 31, 1997 (the "Latest Balance
Sheet"), the Company has no liabilities, debts, claims or obligations of any
nature on the date of this Agreement, whether accrued, absolute, direct or
indirect, contingent or otherwise, whether due or to become due, that would be
required to be included on a balance sheet prepared in accordance with GAAP and
there is no existing condition or set of circumstances which would reasonably be
expected to result in such a liability ("Company Liabilities") except (i)
Company Liabilities (including, without limitation, Company Liabilities arising
under the terms and conditions of reinsurance contracts) incurred in the
ordinary and usual course of business and consistent with past practice since
the date of the Latest Balance Sheet, (ii) Company Liabilities incurred in
connection with or as a result of the transactions contemplated by this
Agreement and the Company's proposed initial public offering, and (iii) Company
Liabilities that would not reasonably be expected to have a Material Adverse
Effect on the Company.
SECTION 3.06 Absence of Certain Changes. Except as set forth in Section
3.06 of the Disclosure Letter and except as would not individually or in the
aggregate reasonably be expected to have a Material Adverse Effect on the
Company since the date of the Latest Balance Sheet each of the Company and its
Subsidiaries has conducted its business in the ordinary course of business
consistent with past practice and has not, from the date of the Latest Balance
Sheet to the date hereof, taken any of the actions referred to in paragraphs (a)
through (u) of Section 6.01.
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SECTION 3.07 Certain Fees. No finder, broker, agent, financial advisor or
other intermediary other than Morgan Stanley & Co. Incorporated (whose fee for
services shall be paid by the Company) has acted on behalf of the Company in
connection with this Agreement or the transactions contemplated by this
Agreement, or is entitled to any payment in connection herewith or therewith.
SECTION 3.08 No Defaults. Neither the Company nor any of its Subsidiaries
is in default or violation (and no event has occurred which with notice or lapse
of time or both would constitute a default or violation) of its memorandum of
association or bye-laws or other governing document, except for such defaults or
violations as would not reasonably be expected to have a Material Adverse Effect
on the Company either individually or in the aggregate. Except as set forth in
Section 3.08 of the Disclosure Letter, the execution, delivery and performance
of this Agreement and the taking of any other action contemplated by this
Agreement, will not (i) result in any violation of or be in conflict with or
constitute a breach or default (with or without notice or lapse of time or both)
under the memorandum of association or bye-laws of the Company or its
Subsidiaries, (ii) result in or constitute an event entitling any party to any
material agreement, mortgage, indenture, debenture, trust, lease, license, or
other instrument or obligation to or by which it or any of its properties is
subject or bound (including, without limitation, the Shareholders' Agreement,
dated October 13, 1993, between the Company and the Sellers (the "Shareholders'
Agreement")) to effect an acceleration of the maturity of any material
indebtedness of the Company or any of its Subsidiaries or a material increase in
the rate of interest presently in effect with respect to such indebtedness, or
(iii) result in the creation of any Lien upon any of the material properties or
assets of the Company or any of its Subsidiaries.
SECTION 3.09 Governmental Consents. Except for the consent of the Minister
of Finance of Bermuda acting through the Bermuda Monetary Authority (the
"Minister"), no consent, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with, any Governmental
Authority ("Consent") is required on the part of the Company in connection with
the transactions contemplated by this Agreement, except those required by United
States federal and state securities or "Blue Sky" laws, except where failure to
obtain such Consent would not effect (i) the ability of the Company and its
Subsidiaries to perform its obligations under this Agreement or consummate the
transactions contemplated by this Agreement or (ii) the ability of the Purchaser
after the Closing to conduct the business of the Company as currently conducted.
SECTION 3.10 Compliance with Applicable Law. Each of the Company, its
Subsidiaries and Enterprise and its Subsidiaries has been and is in compliance
with all Permits necessary to conduct its respective business, except where
failure to have or comply with such Permits would not reasonably be expected to
have a Material Adverse Effect on the Company. None of the Company, any of its
Subsidiaries nor Enterprise or any of its Subsidiaries is in default or
violation (and no event has occurred which with notice or the lapse of time or
both would constitute a default or violation) of any Law, except for such
defaults or violations as would not reasonably be expected to have a Material
Adverse Effect on the Company. The execution, delivery, and
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performance of this Agreement and the taking of the other actions contemplated
by this Agreement to be executed, delivered and performed by the Company prior
to the date or dates as of which the representations and warranties in this
Agreement are made or deemed made, will not result in any default or violation
of any Law applicable to the Company or its Subsidiaries or Enterprise or its
Subsidiaries, except for such defaults or violations as would not reasonably be
expected to have a Material Adverse Effect on the Company, either individually
or in the aggregate.
SECTION 3.11 Derivatives. Section 3.11 of the Disclosure Letter sets forth
a complete and correct list of all futures, forward, swap, option or swaption
contract or any other financial instruments with similar characteristics and/or
generally characterized as a "derivative security" (the "Derivative Financial
Instruments"), including the face, contract or notional amount of and open
position relating to such Derivative Financial Instruments, to which the Company
or any of its Subsidiaries or any of their respective assets or properties is
subject or bound (including without limitation, funds of the Company or any of
its Subsidiaries invested by any other Person as of the date of this Agreement).
The Company has heretofore provided complete and correct copies of all
documentation evidencing such Derivative Financial Instruments to Purchaser.
SECTION 3.12 Contracts. (a) Section 3.12(a) of the Disclosure Letter sets
forth a complete and accurate list, as of the date hereof, of all contracts,
agreements, commitments, arrangements, leases, insurance policies or other
instruments, written or oral, to which the Company or any of its Subsidiaries is
a party, or by which any of the respective assets, business or operations may be
bound or affected (in each case, excluding policies of insurance or reinsurance
or retrocession agreements in the ordinary course of business), which contain
obligations of the Company or its Subsidiaries in excess of $5,000,000 in any
one fiscal year or $10,000,000 in the aggregate in any five year period (unless
such contract is terminable on not more than one year's notice without cause and
payment of penalty) or which are otherwise material to the business of the
Company and its Subsidiaries taken as a whole (collectively, the "Contracts").
(b) Except as listed in Section 3.12(b) of the Disclosure Letter, none of
the Company or any of its Subsidiaries is a party to or owner of any:
(i) agreement, contract, commitment or undertaking (other than
contracts of insurance or reinsurance or retrocession agreements) the
performance or non-performance of which is individually or, with respect to
any related series of agreements, in the aggregate, material to the Company
and the Subsidiaries, taken as a whole;
(ii) agreement, contract, commitment or undertaking (other than
contracts of insurance or reinsurance or retrocession agreements) which
provides for an aggregate purchase price or payments of more than $100,000
under any agreement during any two-year period (or $100,000 in the
aggregate, during any two-year period, in the case of any related series of
agreements);
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(iii) agreement for the sale or lease of any of the assets and
properties of the Company or any of its Subsidiaries other than in the
ordinary course of business consistent with past practices;
(iv) material mortgage, pledge, conditional sales contract, security
agreement, factoring agreement, or other similar material agreement with
respect to any real or personal property of the Company or any of its
Subsidiaries;
(v) agreement with a labor union or labor association;
(vi) loan agreement, promissory note issued by it, guarantee,
subordination or similar type of agreement;
(vii) securities issued by any Affiliate of the Company;
(viii) noncompetition or non-solicitation agreement;
(ix) support agreement, guarantee or other agreement for the benefit
of any Affiliate of the Company (including any of the Sellers);
(x) agreement, contract, commitment or undertaking with any of the
Sellers or their Affiliates; or
(xi) power of attorney or agreement with a managing general agent or
third party administrator.
(c) With respect to each Contract and each contract listed in Section
3.12(b) of the Disclosure Letter (a "Schedule 3.12(b) Contract"), (i) assuming
the due authorization, execution and delivery thereof by the other party or
parties thereto, such Contract or Schedule 3.12(b) Contract is valid and binding
in all material respects in accordance with its terms and is in full force and
effect, (ii) the Company and its Subsidiaries are not, and to the knowledge of
the Company, its Subsidiaries or any Seller, no other party thereto is, in
breach or default in the performance, observance or fulfillment of any
obligation, covenant or condition contained therein except where such defaults
would not, individually or in the aggregate, have a Material Adverse Effect on
the Company and (iii) to the knowledge of the Company, its Subsidiaries or any
Seller, no event has occurred which with or without the giving of notice or
lapse of time, or both, would constitute a breach or default thereunder except
where such defaults would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on the Company.
SECTION 3.13 Taxes. (a) The Company and its Subsidiaries have not, nor have
any of them been, engaged in a trade or business in the United States of America
within the meaning of Section 882(a) of the Code, and the Company and its
Subsidiaries do not have, nor have any of
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them ever had, any income which is effectively connected with the conduct of a
trade or business within the United States, within the meaning of Section
882(a)(1) of the Code. The Company and each of its Subsidiaries have filed or
caused to be filed with the appropriate Bermuda, United States federal, state,
local, foreign and other Governmental Authorities, all Tax returns, information
returns and reports required to be filed on or prior to the date hereof which,
if not filed, would have a Material Adverse Effect on the Company, and has paid
in full or made adequate provision (in accordance with GAAP) for the payment of
all Taxes (including taxes withheld from employees' salaries and other
withholding taxes and obligations) shown to be due on such Tax returns. All
material written assessments of Taxes due and payable by or on behalf of the
Company and each of its Subsidiaries have either been paid or provided for (in
accordance with GAAP) or are being contested in good faith by appropriate
proceedings.
(b) There are no material Tax claims pending against the Company or any of
its Subsidiaries and neither the Company nor any of its Subsidiaries knows of
any threatened claim for Tax deficiencies or any basis for such claims, no
material issues have been raised in any examination by any taxing authority with
respect to the Company or any of its Subsidiaries which, by application of
similar principles, reasonably could be expected to result in a proposed
deficiency for any other period not so examined, and there are not now in force
any waivers or agreements by the Company or any of its Subsidiaries for the
extension of time for the assessment of any material Tax, nor has any such
waiver or agreement been requested by any taxing authority. Neither the Company
nor any of its Subsidiaries have any liability for any material Bermuda, United
States federal, state, local, foreign or other Taxes of any corporation or
entity other than the Company or its Subsidiaries, respectively.
(c) Except as disclosed in Section 3.13(c) of the Disclosure Letter,
neither the Company nor any of its Subsidiaries have for the year ended December
31, 1997, and do not expect to have for the year ended December 31, 1998,
"related person insurance income" within the meaning of Section 953(c)(2) of the
Code attributable to persons related to the Company or its Subsidiaries prior to
the Closing Date.
(d) For periods prior to the Closing, shareholders of the Company have not
been and will not be subject to United States federal income tax on any income
of the Company or its Subsidiaries prior to its distribution to them as
dividends or on redemption of their Shares.
SECTION 3.14 Litigation. Except as set forth in Section 3.14 of the
Disclosure Letter, there are no Proceedings pending against, or to the knowledge
of the Company, threatened against or affecting, the Company, any of its
Subsidiaries or Enterprise or any of its Subsidiaries or any of their respective
properties before any Governmental Authority or otherwise which (i) individually
or in the aggregate would be expected to have a Material Adverse Effect on the
Company; (ii) in any manner challenges or seeks to prevent, enjoin, alter or
delay the transactions contemplated by this Agreement; or (iii) alleges criminal
action or inaction. As of the date hereof, none of the Company, its
Subsidiaries, Enterprise or its Subsidiaries or their respective properties is
subject to any order,
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writ, judgment, injunction, decree, determination or award having, or which
would reasonably be expected to have, a Material Adverse Effect on the Company,
or which would prevent or delay the consummation of the transactions
contemplated by this Agreement. Except as set forth in Section 3.14 of the
Disclosure Letter, there are no pending or, to the knowledge of the Company,
threatened claims for indemnification by the Company, any of its Subsidiaries or
Enterprise or any of its Subsidiaries in favor of directors, officers, employees
and agents of the Company, any of its Subsidiaries or Enterprise or any of its
Subsidiaries, respectively.
SECTION 3.15 Title to Properties; Leases. Except as set forth in Section
3.15(a) of the Disclosure Letter, each of the Company and its Subsidiaries has
good title to, and is the lawful owner of, or has the right to use pursuant to a
license or otherwise, all of the tangible and intangible personal property used
in its businesses and all tangible and intangible personal property reflected in
the Latest Balance Sheet or acquired since the date of the Latest Balance Sheet,
free and clear of all Liens and material defects other than Permitted Liens.
Except as set forth in Section 3.15(b) of the Disclosure Letter, all material
real property owned by the Company or its Subsidiaries, as the case may be, (the
"Real Property") is owned free and clear of all Liens other than Permitted
Liens. Section 3.15(c) of the Disclosure Letter, sets forth all material real
property and personal property leases of the Company and its Subsidiaries. All
such leases are valid, binding and enforceable against the Company or its
Subsidiaries (and, to the knowledge of the Company, each other party thereto) in
accordance with their respective terms, and there does not exist, under any
lease of real property or personal property, any material defect or any event
which, with notice or lapse of time or both, would constitute a material default
by the Company or its Subsidiaries, as the case may be, or, to the knowledge of
the Company, by any other party thereto.
SECTION 3.16 Certain Agreements. Except as set forth in Section 3.16 or
Section 3.22 of the Disclosure Letter and except for reinsurance contracts with
customers outside the United States, the Company is not a party to or bound by
any Contract which would cause the rights or obligations of any party thereto to
change as a result of the consummation of the transactions contemplated by this
Agreement, except for any such Contract which would not reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect on the
Company.
SECTION 3.17 U.S. Assets. The Company and its Subsidiaries do not hold
assets located in the United States of America having an aggregate book value of
$15 million or more, other than investment assets, voting securities and
nonvoting securities of another Person. For the purpose of this representation,
"investment assets" means cash, deposits in financial institutions, other money
market instruments and instruments evidencing government obligations.
SECTION 3.18 Employees. Section 3.18 of the Disclosure Letter sets forth a
list of all employment contracts and similar arrangements between the Company or
any of its Subsidiaries and their respective executive officers, and all plans
and arrangements pursuant to which the Company or any of its Subsidiaries is
obligated to make any payment or confer any benefit upon any officer, director,
employee or agent of the Company or any of its Subsidiaries as a result of or in
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connection with any of the transactions contemplated by this Agreement or any
transaction or transactions resulting in a change of control of the Company or
any of its Subsidiaries. As of the date of this Agreement, the Company is not
aware that any officer, director, executive or key employee of the Company or
any of its Subsidiaries or any group of employees of the Company or any of its
Subsidiaries has any plans to terminate his, her or its employment with the
Company (other than as previously described to the Purchaser in writing). Except
as described in Section 3.18 of the Disclosure Letter, (i) the Company and its
Subsidiaries have complied with all laws relating to the employment of labor,
including provisions thereof relating to wages, hours, equal opportunity, and
collective bargaining except where the failure so to comply would not reasonably
be expected to have a Material Adverse Effect on the Company, (ii) no labor
dispute with employees of the Company or any of its Subsidiaries exists or, to
the knowledge of the Company, is threatened, except as would not reasonably be
expected to have a Material Adverse Effect on the Company, (iii) each Employee
Benefit Plan conforms in all material respects to, and its administration is in
conformity in all material respects with, all applicable laws, no material
liability has been or is expected to be incurred by the Company or any of its
Subsidiaries with respect to any Employee Benefit Plan except regular periodic
contributions to such plans and full payment has been made of all amounts that
the Company or any of its Subsidiaries is required to have paid as contributions
to each Employee Benefit Plan, (iv) to the extent requested by the Purchaser,
the Company has made available to the Purchaser or provided the Purchaser with a
true and correct copy of each of the Employee Benefit Plans and all contracts
relating thereto, or to the funding thereof, (v) all Employee Benefit Plans
intended to satisfy applicable tax qualification requirements, or other
requirements necessary to secure favorable tax or other legal treatment comply
in all material respects with such requirements, and (vi) except as explicitly
disclosed in the Disclosure Letter or the notes to the Financial Statements,
adequate accruals for all obligations under the Employee Benefit Plans are
reflected in the Financial Statements of the Company. No Employee Benefit Plan
is subject to Title IV of the United States Employee Retirement Income Security
Act of 1974, as amended.
SECTION 3.19 Intellectual Property. The Company and its Subsidiaries own or
possess, or have all necessary rights and licenses in, all patents, patent
rights, licenses, inventions (whether or not patentable or reduced to practice),
copyrights (whether registered or unregistered), know-how (including trade
secrets and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), registered and unregistered trademarks,
service marks and trade names and other intellectual property rights
(collectively, "Intellectual Property") necessary to conduct its business as
conducted except to the extent that the failure of the Company or its
Subsidiaries to own or have such rights and licenses in such Intellectual
Property would not reasonably be expected to have a Material Adverse Effect on
the Company. Except as set forth in Section 3.19 of the Disclosure Letter,
neither the Company nor any of its Subsidiaries has received any unresolved
notice of, or is aware of any fact or circumstance that would give any Person a
right to assert, infringement or misappropriation of, or conflict with, asserted
rights of others or invalidity or unenforceability of any Intellectual Property
owned by the Company or any of its Subsidiaries with respect to any of the
foregoing which, singly or in the aggregate, would reasonably be expected to
have a Material Adverse Effect on the Company. Except as set forth in Section
3.19 of the
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Disclosure Letter, to the knowledge of the Company, the use of such Intellectual
Property to conduct the business and operations of the Company and its
Subsidiaries as conducted does not infringe on the rights of any person in any
case where such infringement would reasonably be expected to have a Material
Adverse Effect on the Company. To the knowledge of the Company, no Person is
challenging, infringing on or otherwise violating any right of the Company or
any of its Subsidiaries with respect to any Intellectual Property owned by
and/or licensed to the Company. Except as set forth in Section 3.19 of the
Disclosure Letter, neither the execution of this Agreement nor the consummation
of the transactions contemplated by this Agreement will result in a loss or
limitation in the rights and licenses of the Company or any of its Subsidiaries
to use or enjoy the benefit of any Intellectual Property employed by the Company
or any of its Subsidiaries in connection with its business as conducted where
such loss or limitation, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect on the Company.
SECTION 3.20 Takeover Statutes. No "fair price", "moratorium", "control
share acquisition" or other similar anti-takeover statute or regulation enacted
under any Bermuda, United States federal or state law applicable to the Company
or any of its Subsidiaries is applicable to the transactions contemplated by
this Agreement. The Company has taken all steps necessary to irrevocably exempt
the transactions contemplated by this Agreement from any applicable provisions
of the Company's memorandum of association or bye-laws.
SECTION 3.21 Environmental Matters. Except as disclosed in Section 3.21 of
the Disclosure Letter:
(a) The Company and its Subsidiaries are in material compliance with all
Environmental Laws;
(b) The Company and its Subsidiaries have obtained and are in material
compliance with the conditions of all Permits required under applicable
Environmental Laws for the continued conduct of their respective businesses in
the manner now conducted; and
(c) To the knowledge of the Company, there is no threatened or existing
Proceeding indicating that the Company or any of its Subsidiaries may be (i) in
material violation of any Environmental Law, (ii) subject to liabilities or
obligations for any cleanup, remediation or corrective action under any
Environmental Law, (iii) subject to claims arising under any Environmental Law
for personal injury, property damage, or damage to natural resources, or (iv)
subject to fines or penalties arising under any Environmental Law.
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SECTION 3.22 Insurance Matters. (a) None of the Company's Subsidiaries
other than Enterprise or Enterprise's Subsidiaries provides any insurance or
reinsurance. All reinsurance and coinsurance treaties or agreements, including
retrocessional agreements, to which the Company or any of its Subsidiaries is a
party or under which the Company or any of its Subsidiaries has any existing
rights, obligations or liabilities are in full force and effect, except for such
treaties or agreements the failure to be in full force and effect of which are
not, individually or in the aggregate, reasonably likely to have a Material
Adverse Effect on the Company. Except as disclosed in Section 3.22(a) of the
Disclosure Letter, neither the Company nor any of its Subsidiaries nor, to the
knowledge of the Company, any other party to a reinsurance or coinsurance treaty
or agreement to which the Company or any of its Subsidiaries is a party, is in
default in any material respect as to any provision thereof, and no such
agreement contains any provision providing that the other party thereto may
terminate such agreement by reason of the transactions contemplated by this
Agreement. Except as disclosed in Section 3.22(b) of the Disclosure Letter, for
the year ended December 31, 1997, no insurer or reinsurer or group of affiliated
insurers or reinsurers ceded insurance premium to the Company in an aggregate
amount of earned premium equal to five percent or more of the consolidated gross
earned premium income of the Company for such year.
(b) Prior to the date hereof, the Company has delivered or made available
to Purchaser a true and complete copy of any actuarial reports prepared by
actuaries, independent or otherwise, with respect to the Company or any of its
Subsidiaries since December 31, 1994, and all attachments, addenda, supplements
and modifications thereto (the "Company Actuarial Analyses"). The information
and data furnished by the Company to its independent actuaries in connection
with the preparation of the Company Actuarial Analyses were accurate in all
material respects. Furthermore, to the knowledge of the Company, each Company
Actuarial Analysis was based upon an accurate inventory of policies in force for
the Company at the relevant time of preparation, was prepared using appropriate
modeling procedures accurately applied and in conformity with generally accepted
actuarial standards consistently applied, and the projections contained therein
were properly prepared in accordance with the assumptions stated therein.
(c) The Company does not have a rating with respect to its financial
strength or claims-paying ability from Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc. As of the date of this Agreement,
A.M. Best Company has not announced that it has under surveillance or review its
rating of the financial strength or claims-paying ability of the Company and the
Company has no reason to believe that any such rating presently held by the
Company is likely to be modified, qualified, lowered or placed under
surveillance for any reason, other than as a result of the transactions
contemplated by hereby.
(d) The Company's investment portfolio has been acquired (i) in compliance
with the investment guidelines in effect at the time of acquisition or (ii) as
otherwise approved by the Board of Directors of the Company and is being
maintained in compliance with the investment guidelines
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of the Company as currently in effect (and approved by the Board of Directors of
the Company) or as otherwise approved by the Board of Directors of the Company.
SECTION 3.23 Liabilities and Reserves. The reserves carried on the
Financial Statements for future insurance policy benefits, losses, claims and
similar purposes were, as of the respective dates of such Financial Statements,
determined in all material respects in accordance with generally accepted
actuarial standards and principles consistently applied, and were fairly stated
in all material respects in accordance with sound actuarial accounting
principles. Such reserves were adequate (within the meaning of generally
accepted actuarial standards) in the aggregate to cover the total amount of all
reasonably anticipated liabilities of the Company under all outstanding
insurance, reinsurance and other applicable agreements as of the respective
dates of such Financial Statements. In addition, the Company has delivered or
made available to Purchaser copies of all work papers used as the basis for
establishing the reserves for the Company at December 31, 1996 and December 31,
1997, respectively.
SECTION 3.24 Spin-Off of Enterprise. Prior to the date of this Agreement,
the board of directors of the Company has declared a dividend to distribute to
its shareholders and certain employees all shares of capital stock of Enterprise
held by the Company not previously delivered to such Persons upon the exercise
of options or other contractual rights held by them. As of the Closing Date and
immediately prior to the Closing, the Spin-Off will have been consummated. To
the Company's knowledge, no Person or Governmental Authority is challenging or
otherwise attempting to set aside the Spin-Off.
SECTION 3.25 Acquisition of Hamilton. As of the date of this Agreement and
as of the Closing Date, to the Company's knowledge, no Person or Governmental
authority is challenging or otherwise attempting to set aside the acquisition of
Hamilton Services Limited ("Hamilton") capital stock by the Company.
SECTION 3.26 Interested Party Transactions. Listed in Section 3.26 of the
Disclosure Letter are all transactions or contractual relationships which would
be required to be reported as a Certain Relationship or Related Transaction,
pursuant to Item 404 of Regulation S-K promulgated by the SEC, as of the date of
this Agreement. Other than those amounts listed in Section 3.26 of the
Disclosure Letter, the Company does not owe and is not owed amounts in excess of
$250,000 for any fiscal year relating to such transactions or contractual
relationships.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Each Seller, severally and not jointly, hereby represents and warrants to
the Purchaser as to such Seller that:
SECTION 4.01 Ownership of Shares. Except as set forth in Section 4.01 of
the Disclosure Letter, such Seller is the owner, beneficially and of record, of
the Shares set forth opposite its name on Exhibit A hereto, free and clear of
any Lien (other than Liens related to the Shareholders' Agreement) and, at
Closing, such Seller will transfer title to all such Shares free and clear of
all Liens including any Lien related to the Shareholders' Agreement.
SECTION 4.02 Organization of Certain Sellers. If such Seller is a
corporation, limited liability, partnership or other similar entity, such Seller
is duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization.
SECTION 4.03 Authority. Such Seller has all requisite power and authority
to enter into this Agreement, and the Option Agreement and the Escrow Agreement
(the "Seller Ancillary Agreements") and to consummate the transactions
contemplated by this Agreement and the Seller Ancillary Agreements. The
execution and delivery of this Agreement and the Seller Ancillary Agreements by
such Seller, the performance by such Seller of its obligations hereunder and
thereunder and the consummation of the transactions contemplated by this
Agreement and the Seller Ancillary Agreements have been duly authorized by all
necessary action on the part of such Seller. Except as set forth in Section 4.03
of the Disclosure Letter, no other proceedings on the part of such Seller are
necessary for the execution, delivery and performance of this Agreement and the
Seller Ancillary Agreements by such Seller, performance by such Seller of its
obligations under this Agreement and the Seller Ancillary Agreements and the
consummation by such Seller of the transactions contemplated by this Agreement
and the Seller Ancillary Agreements. This Agreement has been duly executed and
delivered by such Seller and is, and the Seller Ancillary Agreements, upon the
execution and delivery thereof will be (assuming the due authorization,
execution and delivery hereof and thereof by the other parties thereto) legal,
valid and binding obligations of such Seller, enforceable against such Seller in
accordance with their respective terms, subject with respect to enforceability
to the effect of bankruptcy, fraudulent conveyance, insolvency, reorganization,
moratorium, or similar laws now or hereafter affecting the enforcement of
creditors' rights generally and to the availability of equitable remedies.
SECTION 4.04 No Defaults. Neither the execution and delivery of this
Agreement nor the consummation by such Seller of the transactions contemplated
by this Agreement will (i) violate, or be in conflict with the organizational
documents of such Seller or the Shareholders' Agreement, (ii) violate or be in
conflict with, allow the termination of, constitute a default under, cause the
acceleration of the maturity of, or create a Lien under, any material debt or
obligation pursuant to any material agreement or commitment to which such Seller
is a party or by which such
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Seller is bound, or (iii) violate any Law or any judgment, decree or order of
any Governmental Authority to which such Seller is subject, except, in each
case, for such defaults or violations as would not reasonably be expected to
have a Material Adverse Effect on such Seller either individually or in the
aggregate.
SECTION 4.05 Consents and Approvals. Except for the consent of the
Minister and as set forth in Section 4.05 of the Disclosure Letter, no consent,
approval or authorization of, or declaration, filing or registration with, any
Governmental Authority or other third party is required to be made or obtained
by such Seller in connection with the execution, delivery and performance of
this Agreement or the Option Agreement or the consummation of the transactions
contemplated by this Agreement or the Option Agreement, except where failure to
obtain such consent would not effect (i) the ability of such Seller to perform
its obligations under this Agreement or consummate the transactions contemplated
by this Agreement or (ii) the ability of the Purchaser after the Closing to
conduct the business of the Company as currently conducted.
SECTION 4.06 Certain Fees. No finder, broker, agent, financial advisor or
other intermediary has acted on behalf of such Seller in connection with this
Agreement or the transactions contemplated by this Agreement, or is entitled to
any payment in connection herewith or therewith which, in either case, would
result in any obligation or liability to the Company.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
THE PURCHASER
The Purchaser hereby represents and warrants to the Company that:
SECTION 5.01 Corporate Organization. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Purchaser has furnished or made available to
the Company complete and correct copies of its memorandum of association and
articles of association as in effect on the date of this Agreement. Such
documents are in full force and effect and no other organizational documents are
applicable to or binding upon the Purchaser.
SECTION 5.02 Authority. Purchaser has all requisite corporate power
and authority to enter into this Agreement, and the Option Agreement and the
Escrow Agreement (the "Purchaser Ancillary Agreements") and to consummate the
transactions contemplated by this Agreement and the Purchaser Ancillary
Agreements. The execution and delivery of this Agreement and the Purchase
Ancillary Agreements by the Purchaser, the performance by the Purchaser of its
obligations hereunder and thereunder and the consummation of the transactions
contemplated by this Agreement and the Purchaser Ancillary Agreements have been
duly authorized by all necessary corporate action on the part of Purchaser
(including, without limitation, the approval of this Agreement and the
transactions contemplated by this Agreement by the necessary vote of the
Purchaser's Board of
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Directors). No other corporate proceedings on the part of the Purchaser, are
necessary for the execution, delivery and performance of this Agreement and the
Purchaser Ancillary Agreements by the Purchaser, performance by the Purchaser of
its obligations under this Agreement and the Purchaser Ancillary Agreements and
the consummation by the Purchaser of the transactions contemplated by this
Agreement and the Purchaser Ancillary Agreements. This Agreement has been duly
executed and delivered by the Purchaser and is, and the Purchaser Ancillary
Agreements, upon the execution and delivery thereof, will be (assuming the due
authorization, execution and delivery hereof and thereof by the other parties
hereto and thereto) legal, valid and binding obligations of the Purchaser,
enforceable against the Purchaser in accordance with their respective terms,
subject with respect to enforceability to the effect of bankruptcy, fraudulent
conveyance, insolvency, reorganization, moratorium, or similar laws now or
hereafter affecting the enforcement of creditors' rights generally and to the
availability of equitable remedies.
SECTION 5.03 Governmental Consents. Except for the consent of the
Minister, no Consent is required on the part of the Purchaser in connection with
the transactions contemplated by this Agreement or the Option Agreement, except
those required by United States federal and state securities or "Blue Sky" laws
and except where failure to obtain such Consent would not effect the ability of
Purchaser to perform its obligations under this Agreement or consummate the
transactions contemplated by this Agreement.
SECTION 5.04 Financing. Purchaser has available to it sufficient funds to
enable it to consummate the transactions contemplated by this Agreement.
SECTION 5.05 Investment. Purchaser (i) understands that the Shares have
not been as of the date hereof registered under the Securities Act, or under any
state securities laws, and are being offered and sold in reliance upon federal
and state exemptions for transactions not involving any public offering, (ii)
the Shares may not be reoffered, resold, pledged or otherwise transferred except
pursuant to an effective registration statement or in accordance with another
exemption from the regulation requirements of the Securities Act, (iii) has
received certain information concerning the Company and has had the opportunity
to obtain additional information as desired in order to evaluate the merits and
the risks inherent in holding the Shares, (iv) is a sophisticated investor with
knowledge and experience in business and financial matters, (v) is able to bear
the economic risk and lack of liquidity inherent in holding the Shares, and (vi)
is an "accredited investor" as such term is defined in Rule 501 of Regulation D
promulgated under the Securities Act.
SECTION 5.06 Litigation. Except as disclosed in (i) the annual report of
the Purchaser on Form 10-K for the fiscal year ended September 30, 1997 or (ii)
the quarterly report of the Purchaser for the quarter ended December 31, 1997,
there are no Proceedings pending against or, to the knowledge of the Purchaser,
threatened against or affecting the Purchaser or any of its properties or
properties of its Affiliates before any Governmental Authority or otherwise
which in any manner challenges or seeks to prevent, enjoin, alter or delay the
transactions contemplated by this Agreement.
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SECTION 5.07 No Defaults. Purchaser is not in default or violation (and
no event has occurred which with notice or lapse of time or both would
constitute a default or violation) of its memorandum of association or articles
of association or other governing document, or any material agreement, mortgage,
indenture, debenture, trust, lease, license or other instrument or obligation to
or by which it or any of its properties is subject or bound (the "Instruments"),
except for such defaults or violations as would not reasonably be expected to
affect the ability of Purchaser to perform its obligations under this Agreement
or consummate the transactions contemplated by this Agreement. Purchaser does
not have knowledge of any default or breach (or event or circumstance that with
notice or lapse of time or both would constitute a breach or default) by other
parties to any Instrument, which default or breach would reasonably be expected
to affect the ability of Purchaser to perform its obligations under this
Agreement or consummate the transactions contemplated by this Agreement. The
execution, delivery and performance of this Agreement and the taking of any
other action contemplated by this Agreement or any Ancillary Agreement, will not
(i) result in any violation of or be in conflict with or constitute a breach or
default (with or without notice or lapse of time or both) under (a) the
memorandum of association or articles of association of the Purchaser (b) any of
the other Instruments, breach of or default under which would reasonably be
expected to effect the ability of Purchaser to perform its obligations under
this Agreement or consummate the transactions contemplated by this Agreement,
(ii) result in or constitute an event entitling any party to an Instrument to
effect an acceleration of the maturity of any material indebtedness of the
Purchaser or a material increase in the rate of interest presently in effect
with respect to such indebtedness, or (iii) result in the creation of any Lien
upon any of the material properties or assets of the Purchaser.
SECTION 5.08 Certain Fees. No finder, broker, agent, financial advisor or
other intermediary other than Credit Suisse First Boston Corporation has acted
on behalf of the Purchaser in connection with this Agreement or the transactions
contemplated by this Agreement, or is entitled to any payment in connection
herewith or therewith.
ARTICLE VI
COVENANTS
SECTION 6.01 Conduct of Business. Except as expressly contemplated by
this Agreement or consented to in writing by Purchaser (in its sole discretion),
or as limited by this Section 6.01, during the period from the date of this
Agreement to the Closing Date, the Company and its Subsidiaries will conduct its
operations only in, and neither the Company nor any of its Subsidiaries shall
take any action except in, the ordinary and usual course of business and
consistent with past practice, and the Company and its Subsidiaries will use its
reasonable best efforts to preserve intact its business organization, to keep
available the services of its officers and employees and to maintain
advantageous relationships with customers, licensors, licensees, suppliers,
contractors, distributors, business partners and others having business
relationships with the Company or its Subsidiaries. Without limiting the
generality of the foregoing and except as
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expressly contemplated by this Agreement or as set forth in Section 6.01 of the
Disclosure Letter, from the date of this Agreement until the Closing Date,
neither the Company nor any of its Subsidiaries will, without the prior written
consent of Purchaser (such consent in Purchaser's sole discretion):
(a) other than in connection with the exercise of the options or other
contractual rights listed on Section 6.01(a) of the Disclosure Letter or the
contingent dividend to be declared by the Board of Directors of the Company as
part of the Spin-Off, split, combine or reclassify any shares of its capital
stock, declare, pay or set aside for payment any dividend or other distribution
payable in cash, stock, property or otherwise in respect of its capital stock,
or directly or indirectly redeem, purchase or otherwise acquire any shares of
its capital stock, or other securities, which purchase or redemption would
otherwise not result in an adjustment to the Purchase Price to be paid to the
shareholders of the Company under Section 2.03 of this Agreement;
(b) authorize for issuance, issue, sell, pledge, dispose of or encumber,
deliver or agree or commit to issue, sell, pledge or deliver (whether through
the issuance or granting of any options, warrants, commitments, subscriptions,
rights to purchase or otherwise) any capital stock of any class of the Company
or any securities convertible into or exercisable or exchangeable for shares of
capital stock of any class of the Company or amend any of the terms of any such
securities or agreements outstanding as of the date hereof;
(c) (i) incur or assume any long-term or short-term debt or issue any debt
securities except for borrowings under existing lines of credit in the ordinary
course of business, (ii) assume, guarantee, endorse or otherwise become liable
or responsible (whether directly, contingently or otherwise) for the obligations
of any other Person except in the ordinary course of business and in amounts not
material to the Company or its Subsidiaries, (iii) make any loans or advances to
any Person other than loans or advances of out-of-pocket expenses incurred in
connection with the business of the Company or its Subsidiaries, or make any
capital contributions to, or investments in, any other Person, (iv) pledge or
otherwise encumber shares of capital stock of the Company or its Subsidiaries,
or (v) mortgage or pledge any of its assets, tangible or intangible, or create
any Lien thereupon other than Permitted Liens;
(d) except as may be required by law or as contemplated by this Agreement,
including Section 6.03, enter into, adopt, or amend or terminate any bonus,
profit sharing, compensation, severance, termination, stock option, equity award
unit, restricted stock, performance unit, stock equivalent, stock purchase
agreement, pension, retirement, deferred compensation, employment, severance or
other Employee Benefit Plan; or enter into or amend any employment or severance
agreement with, increase in any manner the salary, wages, bonus, commission, or
other compensation or benefits of, any director, officer, employee or agent of
the Company or any of its Subsidiaries except for increases in the ordinary
course of business and consistent with past practice which are not material in
amount; or pay any benefit not required by any plan and arrangement as in effect
as of the date hereof (including, without limitation, the granting of stock
options, equity
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award units or performance units) except for benefits paid in the ordinary
course consistent with past practice which are not material in amount;
(e) other than the Company's acquisition of Hamilton on the terms set forth
in Section 6.01(e) of the Disclosure Letter, acquire (by merger, amalgamation,
consolidation or acquisition of stock or assets) any corporation, partnership or
other business organization or division thereof or make any material investment
(other than investments made in compliance with the Company's existing
investment guidelines) either by purchase of stock or securities, contributions
to capital, property transfer, or acquisition (including by lease) of any
material amount of properties or assets of any other individual or entity;
(f) except as expressly required herein, pay, discharge or satisfy any
claims, liabilities or obligations (absolute, accrued, contingent or otherwise),
other than the payment, discharge or satisfaction in the ordinary course of
business and consistent with past practice of liabilities reflected or reserved
against on the Latest Balance Sheet or incurred in connection with the
transactions contemplated by this Agreement or in the ordinary course of
business and consistent with past practice;
(g) amend the memorandum of association or bye-laws of the Company;
(h) adopt a plan of complete or partial liquidation or resolutions
providing for the complete or partial liquidation, dissolution, amalgamation,
consolidation, restructuring, recapitalization or other reorganization of the
Company;
(i) enter into any new lines of business (whether or not part of the
insurance or reinsurance business), change any existing standard policy forms,
change its investment policies or guidelines or otherwise make material changes
to the operation of its business or change its loss reserve methodology;
(j) other than with respect to investments made by the Company at the
direction of its employees with respect to the deferred compensation plan of the
Company, invest any investment securities of the Company in investments which,
at the time the investment was made, are not rated in one of the four highest
categories by a "nationally recognized statistical rating agency" as defined in
the rules or regulations of the SEC;
(k) except for the Spin-Off, sell (whether by amalgamation, consolidation
or otherwise), lease, encumber, transfer or dispose of any assets (including
without limitation, rights of renewal) outside the ordinary course of business
consistent with past practices or any assets which are material to the Company
or any of its Subsidiaries taken as a whole, or enter into any material
commitment or transaction outside the ordinary course of business consistent
with past practices;
(l) authorize or make or commit to make any capital expenditures, except
for transactions in the ordinary course of business consistent with past
practice (but in no event in excess
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of $100,000 in the aggregate) or pursuant to agreements or commitments entered
into by the Company prior to the date hereof;
(m) make any Tax elections or settle or compromise any material Bermuda,
United States federal, state, local or other foreign income tax liability, or
waive or extend the statute of limitations in respect of any such taxes ;
(n) except for the settlement of insurance or reinsurance claims in the
ordinary course of business consistent with past practice, pay or agree to pay
in settlement or compromise of any suits or claims of liability against the
Company or any of its Subsidiaries, its directors, officers, employees or
agents, more than an aggregate of $100,000 for all such suits and claims;
(o) issue any insurance or reinsurance with respect to Aquila Risk
Management Corporation or permit Aquila Risk Management Corporation to enter
into any Contracts for insurance or reinsurance;
(p) except as may be required as a result of a change in law or in GAAP,
change any of the accounting principles or practices used by it;
(q) establish any loss reserves other than in accordance with GAAP and
consistent with past practice or reduce any loss reserves except upon payment of
the loss to which such reserves relate;
(r) except as expressly contemplated by this Agreement, terminate, modify,
amend or otherwise alter in an adverse manner to the Company any material terms
or provisions of any of its Contracts;
(s) except as expressly contemplated by this Agreement, enter into any
agreement providing for the acceleration or payment or performance or other
consequence as a result of a change in control of the Company or any of its
Subsidiaries;
(t) make any investment in Derivative Financial Instruments; or
(u) take any action or agree, in writing or otherwise, to take any of the
foregoing actions or any action which would make any representation or warranty
in Article III hereof materially untrue or incorrect.
SECTION 6.02 Public Announcements. Prior to the Closing, the Purchaser,
the Company and the Sellers shall not issue any press release or otherwise make
any public statements with respect to this Agreement without the approval of the
other parties as to the wording, timing and media for such press release or
statement, except as may be required by law or any securities exchange, which
shall be notified to the other parties.
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SECTION 6.03 Termination and Waiver of Certain Arrangements. (a) Each of
the Sellers and the Company hereby agree, pursuant to Section 4.09 of the
Shareholders' Agreement, to waive any breach or violation of the Shareholders'
Agreement and the bye-laws of the Company that might arise as a result of the
execution of this Agreement by the Company and the Sellers. The Company and the
Sellers hereby agree that the Shareholders' Agreement and any other agreement to
which any Seller is a party (other than this Agreement) which relates to the
voting or disposition of Shares shall be terminated without further action on
the part of such Seller or the Company prior to the Closing, without any
liability to the Company or Purchaser other than those liabilities fully
satisfied prior to the Closing, and shall be of no further force or effect
concurrently with the consummation of the Closing.
(b) Each of the Sellers and the Company shall cause each of the Contracts
listed in Section 6.03(b) of the Disclosure Letter to which it is party to be
terminated prior to Closing (subject to the transactions contemplated hereby)
without any liability to the Company or Purchaser other than those liabilities
fully satisfied prior to the Closing.
SECTION 6.04 Indemnification; Insurance. (a) From and after the Closing
Date, the Purchaser shall indemnify, defend and hold harmless the officers and
directors of the Company (the "Indemnified Parties") against all losses,
expenses, claims, damages and liabilities arising out of the transactions
contemplated by this Agreement to the fullest extent permitted or required under
applicable law (including, without limitation, reasonable attorneys' fees). The
Purchaser agrees that all rights to indemnification existing in favor of the
directors and officers of the Company and its Subsidiaries as provided in the
memorandum of association and bye-laws or existing indemnification agreements of
the Company and its Subsidiaries, as in effect as of the date hereof, with
respect to matters occurring prior to the Closing Date, shall survive the
consummation of the transactions contemplated by this Agreement and shall
continue in full force and effect for a period of not less than six (6) years
from the Closing Date, and the Purchaser shall guaranty the obligations of the
Company and its Subsidiaries in respect thereof.
(b) The Purchaser will cause to be maintained for a period of not less
than six (6) years from the Closing Date the current directors' and officers'
insurance and indemnification policy of the Company and its Subsidiaries to the
extent that it provides coverage for events occurring prior to the Closing Date
(the "D&O Insurance") for any of the Indemnified Parties; provided, however,
that the Purchaser may, in lieu of maintaining such existing D&O Insurance as
provided above, cause comparable coverage to be provided under any policy
maintained for the benefit of the directors and officers of the Purchaser or any
of its Subsidiaries, so long as (i) the issuer thereof (A) has an A.M. Best
Company rating of A or better or (B) is A.C.E. Insurance Company, Ltd. or
Corporate Officers & Directors Assurance Ltd., and (ii) the material terms
thereof are no less advantageous to the Indemnified Parties than the existing
D&O Insurance. If the existing D&O Insurance expires, is terminated or canceled
during such six-year period, the Purchaser will cause to be obtained, to the
extent commercially available, replacement D&O Insurance on terms and
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conditions no less advantageous to the Indemnified Parties than the existing D&O
Insurance. Notwithstanding the foregoing, in satisfying its obligation under
this Section 6.04, the Purchaser shall not be obligated to pay premiums in
excess of 200% of the premium paid or to be paid by the Company and its
Subsidiaries in the fiscal year ended December 31, 1997, which amounts have been
disclosed to the Purchaser, but provided further that the Purchaser shall
nevertheless be obligated to provide such coverage as may be obtained for 200%
of the premium to be paid by the Company and its Subsidiaries for such insurance
in the fiscal year ending December 31, 1998.
(c) In the event that any action, suit, proceeding or investigation
relating to the matters set forth in this Section 6.04 is commenced, whether
before or after the Closing Date, the parties hereto agree to cooperate and use
their respective best reasonable efforts to assist the Company (prior to the
Closing) and Purchaser (after the Closing) in vigorously defending against and
responding thereto.
SECTION 6.05 Access to Information. Between the date of this Agreement
and the Closing Date, the Company will (and shall cause its Subsidiaries to)
afford to authorized representatives (including without limitation attorneys,
auditors, financial advisors and actuaries) of the Purchaser reasonable access
during normal business hours to all its personnel, offices and other facilities
and to all books and records and will permit Purchaser and its authorized
representatives to make such inspections as they may reasonably require and will
cause its officers and employees to furnish Purchaser and its authorized
representatives such financial and operating data and other information with
respect to its business and properties as the Purchaser and its authorized
representatives may from time to time reasonably request. No information or
knowledge obtained in any investigation pursuant to this Section 6.05 shall
affect or be deemed to modify any representation or warranty contained in the
Agreement or the conditions to the obligations of the parties to consummate the
transactions contemplated by this Agreement. The confidentiality of all such
documents and information furnished in connection with the transactions
contemplated by this Agreement shall be governed by the terms of the
Confidentiality Letter.
SECTION 6.06 Reasonable Best Efforts. Upon the terms and subject to
the conditions hereof, each of the parties hereto will use its reasonable best
efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper, or advisable to consummate and make
effective the transactions contemplated by this Agreement, the Option Agreement,
the Option Termination Agreement and the Escrow Agreement and shall use its
reasonable best efforts to obtain all waivers, permits, consents and approvals
and to effect all registrations, filings and notices with or to third parties or
Governmental Authorities which are necessary or desirable in connection with the
transactions contemplated by this Agreement, the Option Agreement, the Option
Termination Agreement and the Escrow Agreement. If at any time after the
Closing Date any further action is necessary or desirable to carry out the
purposes of this Agreement, the Option Agreement, the Option Termination
Agreement and the Escrow Agreement, the proper officers or directors of each of
the parties hereto shall use its reasonable best efforts to take such action.
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SECTION 6.07 Spin-Off. The Company will use its reasonable best efforts
to consummate, or cause to be consummated, the Spin-Off at or prior to the
Closing.
SECTION 6.08 Option Agreement. Upon obtaining the unconditional consent
of Employers Reinsurance Corporation to the amendment of the Enterprise
Stockholders' Agreement to permit the sale of the Option Shares to the Purchaser
pursuant to the exercise of its Purchase Option and to provide that Purchaser
will not be a "Designated CAT Shareholder" pursuant to the terms of the
Enterprise Stockholders' Agreement (such amendment referred to herein as the
"Enterprise Stockholders' Agreement Amendment"), each Seller shall execute and
deliver to Purchaser the Option Agreement, substantially in the form of Exhibit
B hereto. Sellers shall use their reasonable best efforts to obtain the
unconditional consent of Employers Reinsurance Corporation to the Enterprise
Stockholders' Agreement Amendment as soon as practicable after the date hereof,
but in any event within 45 days after the Closing Date.
SECTION 6.09 Acquisition of Hamilton. At or prior to the Closing, the
Company shall have acquired all of the outstanding capital stock of Hamilton
substantially upon the terms and conditions set forth in Section 6.01(e) of the
Disclosure Letter.
SECTION 6.10 Employee Benefits. (a) Purchaser shall, during the period
commencing at the Closing Date and ending on the first anniversary thereof,
provide the employees of the Company and its Subsidiaries with benefits under
employee benefit plans (other than plans involving the issuance of Share-based
awards) that are no less favorable in the aggregate than those benefits
currently provided by the Company and its Subsidiaries to such employees.
Without limiting the generality of the foregoing sentence, Purchaser explicitly
agrees to assume the obligations of the Company and its Subsidiaries under the
Company's Non-Qualified Deferred Compensation Plan. Following the Closing Date,
Purchaser shall honor all individual employment or severance agreements in
effect for employees (or former employees) of the Company and its Subsidiaries
as of the date hereof to the extent that such individual agreements are included
in Section 3.18 of the Disclosure Letter; provided, however, that nothing
contained herein shall prevent Purchaser from amending or terminating any such
agreement in accordance with such agreement's terms. For a period of six months
after the Closing Date, Purchaser or an Affiliate shall continue the employment,
at substantially the same compensation and with substantially the same job
responsibilities and in the same municipal location as the employee's then
current work location, of all employees of the Company and its Subsidiaries,
subject to the provisions of any applicable employment agreement; provided, that
if any such employee is terminated prior to the termination of such six-month
period, such employee shall nevertheless be entitled to the remainder of such
employees compensation for such six-month period. In addition, Purchaser shall
extend to the Company's officers assistance in purchasing and maintaining
personal automobiles consistent with Purchaser's normal policies and procedures.
(b) Purchaser acknowledges that each of Paul T. Hasse and Charles L. Kline
may serve, without compensation of any kind, as a non-executive co-Chairman of
the Board of Directors of
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Enterprise and as a member of the underwriting committee of the Board of
Directors of Enterprise Reinsurance Limited, in each case, for a period not to
exceed 12 months from the Closing Date; provided, that, if the unconditional
consent of Employers Reinsurance Corporation to the Enterprise Stockholders'
Agreement Amendment has not been obtained within 45 days after the Closing Date,
Purchaser shall have the right to cause Paul T. Hasse and Charles L. Kline to
cease all activities and resign their respective positions as non-executive co-
Chairmen of the Board of Directors of Enterprise and as members of the
underwriting committee of the Board of Directors of Enterprise Reinsurance
Limited as of such 45th day.
(c) The provisions of this Section 6.10 are intended to be for the benefit
of, and shall be enforceable by, employees of the Company and its Subsidiaries,
their heirs and their representatives.
SECTION 6.11 Taxes. On or after the Closing Date, neither the Purchaser
nor any of its Subsidiaries will make any Tax election (including any election
pursuant to Section 338 of the Code), amend any Tax return or take any position
on any Tax return, or take any other action that results in any increased Tax
liability of any Seller for any pre-closing tax period (or portion thereof) or
the purchase and sale of Shares hereunder.
ARTICLE VII
CONDITIONS TO THE CLOSING
SECTION 7.01 General Conditions. The obligations of each party to this
Agreement to consummate the transactions contemplated by this Agreement shall be
subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) The transactions contemplated by the Agreement shall have been approved
by the Minister.
(b) No order, statute, rule, regulation, executive order, stay, decree,
judgment, injunction or regulatory action shall have been enacted, entered,
issued, promulgated, threatened or enforced by any Governmental Authority which
has resulted in a prohibition against the consummation of the transactions
contemplated by this Agreement.
SECTION 7.02 Conditions to the Company's and the Sellers' Obligations.
The obligations of the Company and each Seller to consummate the transactions
contemplated by this Agreement shall be further subject to the following
conditions unless waived in accordance with Section 10.02:
(a) The Purchaser shall have performed in all material respects each
obligation and covenant to be performed by it pursuant to this Agreement on or
prior to the Closing Date.
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(b) The representations and warranties of the Purchaser contained in this
Agreement that are qualified as to materiality shall be true and correct and the
representations and warranties of the Purchaser contained in this Agreement that
are not so qualified shall be true and correct in all material respects, in each
case (except to the extent such representations and warranties speak as of an
earlier date) as though made as of and on the Closing Date, except as otherwise
contemplated by this Agreement.
(c) The Company and Sellers shall receive customary closing documents in
form and substance reasonably satisfactory to it, including, without limitation,
secretary's certificates of the Purchaser certifying the resolutions of the
Board of Directors of the Purchaser approving this Agreement and certifying the
memorandum of association and articles of association of the Purchaser; a
certificate of an executive officer of the Purchaser certifying compliance with
all covenants and obligations of the Purchaser to be performed on the Closing
Date, and certifying as to the accuracy of the representations and warranties of
the Purchaser as of the Closing Date; an incumbency and signature certificate
for officers of the Purchaser; and a good standing certificate for the Purchaser
from the Cayman Islands and a certificate of compliance for the Purchaser from
Bermuda.
(d) The Company and Sellers shall have received evidence satisfactory
to it that all consents, approvals and filings required for the consummation of
the transactions contemplated by this Agreement and the ownership and operation
by the Purchaser and its business have been made or obtained.
(e) Purchaser shall have delivered to Sellers an opinion of Maples &
Calder, an opinion of Mayer, Brown & Platt, and an opinion of Appleby, Spurling
& Kempe, substantially in the form of Exhibit E hereto.
(f) Purchaser and the Escrow Agent shall have executed and delivered to
Sellers the Escrow Agreement, which (assuming due execution by the Sellers)
shall be in full force and effect.
SECTION 7.03 Conditions to the Purchaser's Obligation. The obligation of
the Purchaser to consummate the transactions contemplated by this Agreement
shall be further subject to the following conditions unless waived in accordance
with Section 10.02:
(a) The Company shall have performed in all material respects each
obligation and covenant to be performed by it pursuant to this Agreement on or
prior to the Closing Date.
(b) The representations and warranties of the Company and the Sellers
contained in this Agreement that are qualified as to materiality shall be true
and correct and the representations and warranties of the Company and the
Sellers contained in this Agreement that are not so qualified shall be true and
correct in all material respects, in each case (except to the extent such
representations and warranties speak as of an earlier date) as though made as of
and on the Closing Date, except as otherwise contemplated by this Agreement;
provided, that the representations and warranties made
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by the Company and the Sellers as to Enterprise or any of its Subsidiaries in
Sections 3.01, 3.05, 3.10 and 3.14 shall be made only as of the date of this
Agreement (except to the extent that such representations and warranties speak
as of an earlier date).
(c) Each Seller shall have delivered to the Purchaser one or more
certificates representing, in the aggregate, 100% of the issued and outstanding
Shares of the Company, duly endorsed in blank for transfer or accompanied by
duly executed stock powers, signatures guaranteed, free and clear of all Liens,
in form reasonably acceptable to the Purchaser and its counsel.
(d) Subject to Section 2.06(b), no Material Adverse Effect on the Company
shall have occurred since December 31, 1997 and be continuing.
(e) The Purchaser shall receive customary closing documents in form and
substance reasonably satisfactory to it, including, without limitation, a
secretary's certificate certifying the resolutions of the Board of Directors and
certifying the memorandum of association and bye-laws of the Company; a
Certificate of the Chief Executive Officer of the Company certifying compliance
with all covenants and obligations of the Company and certifying as to the
accuracy of the representations and warranties of the Company as of the Closing
Date; an incumbency and signature certificate for officers of the Company; and a
certificate of compliance for the Company from Bermuda.
(f) The Purchaser shall have received evidence satisfactory to it that all
consents and approvals and filings required for the consummation of the
transactions contemplated by this Agreement and all consents required by
Contracts listed in Section 7.03(f) of the Disclosure Letter shall have been
obtained.
(g) The Purchaser shall have received the resignations of the directors of
the Company and its Subsidiaries.
(h) All the Contracts set forth in Section 6.03(b) of the Disclosure Letter
and all agreements (other than this Agreement) which relate to the voting or
disposition of Shares, including the Shareholders' Agreement, shall have been
terminated without any liability to the Company or Purchaser other than those
liabilities fully satisfied prior to the Closing.
(i) Each Seller shall have delivered to Purchaser an opinion or opinions of
counsel, substantially in the form of Exhibit F hereto.
(j) The Spin-Off shall have been consummated.
(k) The Company shall have acquired all of the outstanding capital stock of
Hamilton under terms and subject to conditions similar in all material respects
to the terms and conditions of such acquisition disclosed to Purchaser in
Section 6.01(e) of the Disclosure Letter.
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(l) If the Sellers have obtained the unconditional consent of Employers
Reinsurance Corporation to the Enterprise Stockholders' Agreement Amendment,
each of the Sellers shall have executed and delivered to Purchaser the Option
Agreement.
(m) Each of the Sellers shall have executed and delivered to Purchaser the
Escrow Agreement, which (assuming due execution by the Purchaser and the Escrow
Agent) shall be in full force and effect.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.01 Survival of Representations, Warranties and Covenants.
Except for the representations and warranties set forth in Section 4.01
(Ownership of Shares) and Section 4.02(Authority) which shall survive forever
(subject to any applicable statutes of limitations), the representations and
warranties of the parties contained in this Agreement, including the Disclosure
Letter and any other written disclosures expressly contemplated by this
Agreement, and any covenants or other agreements the performance of which is
specified to occur on or prior to the Closing Date, shall not survive the
Closing Date. Any covenant or other agreement in this Agreement any portion of
the performance of which may or is specified to occur after the Closing shall
survive the Closing indefinitely or for such lesser period of time as may
specified therein.
SECTION 8.02 Obligations of Seller. From and after the Closing Date, each
of the Sellers hereby agrees, severally and not jointly, to indemnify, defend
and hold harmless the Purchaser and its employees, officers, directors,
partners, stockholders, representatives and agents and Affiliates (the
"Purchaser Indemnified Parties") from and against any and all Losses which any
of them may suffer, incur or sustain arising out of, attributable to, or
resulting from: (i) any breach or nonperformance of any of the covenants or
other agreements made by any Seller in this Agreement and (ii) any inaccuracy in
or breach of the representations and warranties set forth in Section 4.01 or
Section 4.02.
SECTION 8.03 Obligations of the Purchaser. From and after the Closing
Date, the Purchaser hereby agrees to indemnify, defend and hold harmless the
Sellers and the Sellers' beneficiaries (the "Seller Indemnified Parties") from
and against any and all Losses which any of them may suffer, incur, or sustain
arising out of, attributable to, or resulting from any breach or nonperformance
of any of the covenants or other agreements made by the Purchaser in this
Agreement.
SECTION 8.04 Procedure. (a) Notice of Third Party Claims. Any Seller
Indemnified Party or Purchaser Indemnified Party seeking indemnification for any
Loss or potential Loss arising from a claim asserted by a third party against
such Seller Indemnified Party or Purchaser Indemnified Party (a "Third Party
Claim") shall give written notice to the Indemnifying Party
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specifying in detail the source of the Loss or potential Loss under Section 8.02
or 8.03, as the case may be. Written notice to the Indemnifying Party of the
existence of a Third Party Claim shall be given by the Indemnified Party
promptly after notice of the potential claim; provided, however, that the
Indemnified Party shall not be foreclosed from seeking indemnification pursuant
to this Article VIII by any failure to provide such prompt notice of the
existence of a Third Party Claim to the Indemnifying Party unless the
Indemnifying Party has been materially damaged or prejudiced as a result of such
delay.
(b) Defense. Except as otherwise provided in this Agreement, the
Indemnifying Party may elect to compromise or defend, at such Indemnifying
Party's own expense and by such Indemnifying Party's own counsel (which counsel
shall be reasonably satisfactory to the Seller Indemnified Party or Buyer
Indemnified Party, as the case may be), any Third Party Claim. If the
Indemnifying Party elects to compromise or defend such Third Party Claim, it
shall, within thirty (30) days after receiving notice of the Third Party Claim
(ten (10) days if the Indemnified Party states in such notice that prompt action
is required), notify the Indemnified Party of its intent to do so, and the
Indemnified Party shall cooperate, at the expense of the Indemnifying Party, in
the compromise of, or defense against, such Third Party Claim. If the
Indemnifying Party elects not to compromise or defend against the Third Party
Claim, or fails to notify the Indemnified Party of its election to do so as
provided in this Section 8.04, or otherwise abandons the defense of such Third
Party Claim, (1) the Indemnified Party may pay (without prejudice of any of its
rights as against the Indemnifying Party), compromise or defend such Third Party
Claim (until such defense is assumed by the Indemnifying Party) and (2) the
costs and expenses of the Indemnified Party incurred in connection therewith
shall be indemnifiable by the Indemnifying Party pursuant to the terms of this
Agreement. Notwithstanding anything to the contrary contained in this Agreement,
in connection with any Third Party Claim in which the Indemnified Party shall
reasonably conclude, based upon the written advice of its counsel, that (x)
there is a conflict of interest between the Indemnifying Party and the
Indemnified Party in the conduct of the defense of such Third Party Claim or (y)
there are specific defenses or claims available to the Indemnified Party which
are different from or additional to those available to the Indemnifying Party
and which could be materially adverse to the Indemnifying Party, then the
Indemnified Party shall have the right to participate in the defense of such
Third Party Claim with such Indemnified Party's own counsel. In such an event,
the Indemnifying Party shall pay the reasonable fees and disbursements of
counsel of the Indemnifying Party and one counsel to the Indemnified Party.
Notwithstanding the foregoing, neither the Indemnifying Party nor the
Indemnified Party may settle or compromise any claim (however, if the sole
settlement relief payable to a third party in respect of such Third Party Claim
is monetary damages that are paid in full by the Indemnifying Party, the
Indemnifying Party may settle such claim without the consent of the Indemnified
Party) over the objection of the other; provided, however, that consent to
settlement or compromise shall not be unreasonably withheld by the Indemnified
Party. In any event, except as otherwise provided in this Agreement, the
Indemnified Party and the Indemnifying Party may each participate, at its own
expense, in the defense of such Third Party Claim. If the Indemnifying Party
chooses to defend any claim, the Indemnified Party shall make available to the
Indemnifying Party any personnel or any books, records or other
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documents within its control that are reasonably necessary or appropriate for
such defense, subject to the receipt of appropriate confidentiality agreements.
(c) Miscellaneous. The procedures set forth in Section 8.04(b) above
shall apply solely with respect to Third Party Claims and shall not be deemed to
apply to, or otherwise affect or limit, an Indemnified Party's rights under this
Agreement with respect to any claim other than a Third Party Claim.
(d) Notice of Non-Third Party Claims. Any Indemnified Party seeking
indemnification for any Loss or potential Loss arising from a claim asserted by
any party to this Agreement against the Indemnifying Party (a "Non-Third Party
Claim") shall give written notice to the Indemnifying Party specifying in detail
the source of the Loss or potential Loss under Section 8.02 or 8.03, as the case
may be. Written notice to the Indemnifying Party of the existence of a Non-Third
Party Claim shall be given by the Indemnified Party promptly after the
Indemnified Party becomes aware of the potential claim.
SECTION 8.05 Exclusivity. The indemnification provisions contained in
this Article VIII shall be the exclusive post closing remedy available to an
Indemnified Party with respect to the matters referred to in Section 8.02 and
8.03.
SECTION 8.06 Subrogation. The rights of any Indemnifying Party shall be
subrogated to any right of action which the Indemnified Party may have against
any other person with respect to any matter giving rise to a claim for
indemnification under this Agreement.
ARTICLE IX
TERMINATION
SECTION 9.01 Termination. This Agreement may be terminated and the
transactions contemplated by this Agreement may be abandoned at any time prior
to the Closing:
(a) by the mutual written agreement of both Purchaser and each Seller;
(b) by either Purchaser or Sellers by giving written notice of such
termination to the other party, if the Closing shall not have occurred by July
30, 1998;
(c) by either Purchaser or Sellers if a Governmental Authority shall
have issued an order, decree or ruling or taken any other action (which order,
decree or ruling the parties hereto shall use their reasonable best efforts to
lift), in each case permanently restraining, enjoining or otherwise prohibiting
the transactions contemplated by this Agreement, and such order, decree, ruling
or other action become final and nonappealable.
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SECTION 9.02 Procedure and Effect of Termination. In the event of the
termination of this Agreement, none of the Purchaser, the Company or any Seller
shall have any obligation to perform hereunder from and after the date of such
termination, except that Section 10.04 (Expenses), Section 10.07 (Notices),
Section 10.08 (Governing Law) and Section 10.09 (Consent to Jurisdiction; Jury
Trial; Venue) shall survive such termination and remain in full force and effect
notwithstanding such termination. If this Agreement is terminated as permitted
by Section 9.01, such termination shall be without liability of any party (or
any stockholder, director, partner, officer, employee, agent, consultant or
representative of such party) to the other parties to this Agreement; provided
that if such termination shall result from the willful failure of any party to
fulfill a condition to the performance of the obligations of the other parties,
failure to perform a covenant of this Agreement or willful breach by any party
hereto of any representation or warranty or agreement contained herein, such
party shall be fully liable for any and all Losses incurred or suffered by the
other parties as a result of such failure or breach.
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.01 Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified or supplemented only by written agreement
signed on behalf of the Purchaser, the Company and each of the Sellers at any
time prior to the Closing Date with respect to any of the terms contained in
this Agreement.
SECTION 10.02 Waiver of Compliance; Consents. Any failure of the
Purchaser, on the one hand, or the Company and the Sellers, on the other hand,
to comply with any obligation, covenant, agreement or condition in this
Agreement may be waived in writing by the Company and the Sellers or the
Purchaser, respectively, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure. Whenever this Agreement requires or permits consent by or on behalf of
any party hereto, such consent shall be given in writing.
SECTION 10.03 Severability and Validity. The provisions set forth in this
Agreement are severable. If any provision of this Agreement is held invalid or
unenforceable in any jurisdiction, the remainder of this Agreement, and the
application of such provision to other Persons or circumstances, shall not be
affected thereby, and shall remain valid and enforceable in such jurisdiction,
and any such invalidity or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.
SECTION 10.04 Expenses and Obligations; No Right to Set-Off. (a) Each of
the parties shall pay its own expenses incurred in connection with the
negotiation and preparation of this Agreement, the performance of its covenants
in this Agreement, and the effectuation of the transactions contemplated by this
Agreement, including, without limitation, all fees and disbursements of its
respective legal counsel, advisors, and accountants. Each party to this
Agreement shall indemnify and hold harmless the other against any claim for fees
or commissions
42
<PAGE>
of brokers, finders, agents, or bankers retained or purportedly retained by the
indemnitor party in connection with the transactions contemplated by this
Agreement.
(b) Other than with respect to the Escrow Amount, no party shall have a
right to set-off the amounts owed to such party under this Agreement against any
amount to which such party is entitled which does not arise under this
Agreement.
SECTION 10.05 Parties in Interest. Except as contemplated by Sections
6.04 and 6.10 of this Agreement, this Agreement shall be binding upon and inure
solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to confer upon any other Person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
SECTION 10.06 Additional Agreements. Subject to the terms and conditions
provided in this Agreement, the parties hereto agree to use all reasonable
efforts to take, or cause to be taken, all action, and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement.
SECTION 10.07 Notices. Any notices or other communications required or
permitted under, or otherwise in connection with, this Agreement shall be in
writing and shall be deemed to have been duly given when delivered in person or
upon confirmation of receipt when transmitted by facsimile transmission or on
receipt after dispatch by registered or certified mail, postage prepaid,
addressed, as follows:
(a) if to the Purchaser, to:
ACE Limited
The ACE Building
30 Woodbourne Ave.
Hamilton HM08 Bermuda
Telephone: (441) 295-5200
Facsimile: (441) 295-5221
Attention: Peter N. Mear
43
<PAGE>
with copies to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, IL 60603
Telephone: (312) 701-7100
Facsimile: (312) 701-7711
Attention: Edward S. Best
(b) if to the Company prior to the Closing Date, to:
CAT Limited
Cumberland House
One Victoria Street
P. O. Box HM 2702
Hamilton HMKX, Bermuda
Telephone: (441) 292-2102
Facsimile: (441) 292-2371
Attention: President, Chief Executive Officer
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Telephone: (212) 450-4000
Facsimile: (212) 450-4800
Attention: Carole Schiffman
(c) if to the Sellers, to the addresses listed for each Seller in
Exhibit A hereto.
SECTION 10.08 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of Delaware regardless of principles of
conflicts of laws.
SECTION 10.09 Consent to Jurisdiction; Jury Trial; Venue. Each party to
this Agreement irrevocably submits to the exclusive jurisdiction of the courts
of the State of Delaware and of the United States sitting in the State of
Delaware and the provincial courts sitting in Toronto, Ontario, Canada or the
Canadian federal courts sitting in Toronto, Ontario, Canada, as the case may be,
in connection with any such dispute, litigation, action or proceeding arising
out of or relating to
44
<PAGE>
this Agreement. The service of any process or summons in connection with any
such dispute, litigation, action or proceeding brought in any such court may be
served on the Purchaser, the Company or any Seller by mailing it a copy of such
process or summons at its address set forth, and in the manner provided, in
Section 10.07, with such service deemed effective on the fifteenth day after the
date of such mailing. In addition, to the copy of such process or summons mailed
as provided in the immediately preceding sentence, such party shall send an
additional copy of such process or summons by overnight courier to the address
set forth in Section 10.07.
Each party to this Agreement irrevocably waives the right to a trial by
jury in connection with any matter arising out of this Agreement and, to the
fullest extent permitted by applicable law, any defense or objection it may now
or hereafter have to the laying of venue of any proceeding under this Agreement
brought in the courts of the State of Delaware or of the United States sitting
in the State of Delaware or provincial courts sitting in Ontario, Canada or the
federal courts sitting in Toronto, Ontario, Canada and any claim that any
proceeding under this Agreement brought in any such court has been brought in an
inconvenient forum.
SECTION 10.10 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
SECTION 10.11 Headings. The article and section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not affect in any way the meaning or
interpretation of this Agreement. References to Articles or Sections, unless
otherwise specified, are to Articles and Sections of this Agreement.
SECTION 10.12 Release of Claims. Subject to the occurrence of the
Closing and as of the Closing, each Seller and its Subsidiaries, if any, hereby
releases and forever discharges the Company and the Company's Affiliates,
including without limitation, the shareholders, directors, officers, agents,
representatives, advisors and employees of the Company and the Company's
Affiliates, and their respective heirs, executors, administrators, successors
and assigns, from all actions, causes of action, suits, debts, claims and
demands arising out of facts or circumstances prior to the Closing whatsoever,
whether at law or in equity or otherwise, which such Seller ever had, or now or
hereafter may have, for, upon or by reason of any matter, cause or thing
whatsoever related to the Company, whether in its own right, jointly with any
other Person, derivatively or otherwise, contingent, accrued or otherwise
arising out of facts or circumstances prior to the Closing, except for those
rights and obligations arising under the Contracts listed in Section 3.26 of the
Disclosure Letter. The parties understand that no Affiliates of any Seller
(other than Subsidiaries of any Seller) has agreed to release the Company and
its Affiliates pursuant to this Section 10.12.
SECTION 10.13 Entire Agreement; Assignment. This Agreement, including
the documents and instruments referred to in this Agreement, and the
Confidentiality Letter embodies the entire agreement and understanding of the
parties hereto in respect of the subject matter
45
<PAGE>
contained in this Agreement. There are no agreements, restrictions, promises,
representations, warranties, covenants, or undertakings, other than those
expressly set forth or referred to in this Agreement. This Agreement supersedes
all prior agreements and understandings between the parties with respect to such
subject matter. This Agreement shall not be assigned by operation of law or
otherwise, except with the prior written consent of each other party hereto,
except that before or after the Closing, the Purchaser shall have the right,
without such consent, to assign to a direct or indirect wholly owned subsidiary
of the Purchaser its rights and obligations under this Agreement, provided that
no such assignment shall relieve the Purchaser of its obligations hereunder if
such assignee does not perform such obligations. Notwithstanding the foregoing,
First Plaza Group Trust and Leeway & Co. shall have the right to assign this
Agreement to one or more successor trustees, plans or nominees for, or
successors by reorganization of, a qualified pension plan trust, provided that
no such assignment shall relieve First Plaza Group Trust or Leeway & Co. of
their obligations hereunder if any such assignee does not perform such
obligations.
46
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Stock Purchase
Agreement to be signed and sealed on their behalf by their duly authorized
officers, all as of the day and year first above written.
ACE LIMITED
By
--------------------------------------
Name:
Title:
Attest:
- ------------------------
Secretary
[SEAL]
CAT LIMITED
By
--------------------------------------
Name:
Title:
Attest:
- ------------------------
Secretary
[SEAL]
THE MORGAN STANLEY LEVERAGED
EQUITY FUND II, L.P.
By: Morgan Stanley Leveraged Equity
Fund II Inc., as general partner
By
--------------------------------------
Name:
Title:
Attest:
- ------------------------
<PAGE>
MELLON BANK N.A., solely in its capacity
as Trustee for First Plaza Group Trust
as directed by General Motors Investment
(Management Corporation), and not in its
individual capacity
By
--------------------------------------
Name:
Title:
Attest:
- ------------------------
LEEWAY & CO.
By: State Street Bank & Trust Co.,
a partner
By
--------------------------------------
Name:
Title:
Attest:
- ------------------------
CHASE EQUITY ASSOCIATES, L.P.
By: Chase Capital Partners, as
general partner
By
--------------------------------------
Name:
Title:
Attest:
- ------------------------
THE CHUBB CORPORATION
By
--------------------------------------
Name:
Title:
Attest:
- ------------------------
<PAGE>
THE PLYMOUTH ROCK COMPANY INCORPORATED
By
--------------------------------------
Name:
Title:
Attest:
- ------------------------
CHESNEY LIMITED
By
--------------------------------------
Name:
Title:
Attest:
- ------------------------
CRS III LIMITED
By
--------------------------------------
Name:
Title:
Attest:
- ------------------------
<PAGE>
EXHIBIT A
SHAREHOLDERS OF THE COMPANY
<TABLE>
<CAPTION>
Percentage of
Shareholder Number of Shares Owned Outstanding Shares
----------- ---------------------- ------------------
<S> <C> <C>
The Morgan Stanley Leveraged 1,046,725 43.047060%
Equity Fund II, L.P.
1221 Avenue of the Americas
33rd Floor
New York, New York 10020
Attn: General Counsel
First Plaza Group Trust 383,603 15.775855%
c/o Mellon Bank N.A.
One Mellon Center
500 Grant Street
Pittsburgh, Pennsylvania 15258-0001
Attn: Bernadette M. Rist
Leeway & Co. 191,802 7.887948%
c/o State Street Bank & Trust
1 Enterprise Drive
North Quincy, Massachusetts 02171
Attn: Kim Moynihan
Chase Equity Associates, L.P. 192,688 7.924385%
380 Madison Avenue
New York, New York 10017
Attn: John M.B. O'Connor
The Chubb Corporation 193,065 7.939889%
15 Mountain View Road
Warren, New Jersey 07061-1615
Attn: David Kelso
The Plymouth Rock Company Incorporated 16,958 0.697406%
695 Atlantic Avenue
Boston, Massachusetts 02111
Attn: James Stone
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Shareholder Number of Shares Owned Outstanding Shares
----------- ---------------------- ------------------
<S> <C> <C>
Chesney Limited 14,574 0.599363%
Analyst House
20-26 Peel Road
Douglas
Isle of Man IM99 1AP
United Kingdom
Attn: David Drewett
CRS III Limited 392,168 16.128094%
Cumberland House
One Victoria Street
Hamilton HM HX
Bermuda
Attn: President
</TABLE>
A-2
<PAGE>
EXHIBIT B
OPTION AGREEMENT
This Option Agreement ("Agreement") is made as of the __th day of _____,
1998, by and among ACE Limited, a Cayman Islands company ("Grantee"), and the
stockholders [and holders of equity award units] listed on Exhibit A hereto
("Grantors") of Enterprise Reinsurance Holdings Corporation, a Delaware
corporation (the "Company").
WHEREAS, Grantee, CAT Limited, a Bermuda company limited by shares ("CAT"),
and the Grantors have entered into a Stock Purchase Agreement dated as of March
25, 1998 (the "Stock Purchase Agreement"), whereby Grantee has agreed to
purchase for the consideration set forth in the Stock Purchase Agreement, and
the Grantors have agreed to sell all of the Grantors' right, title and interest
to, all of CAT's outstanding common shares, par value $1.00 per share.
WHEREAS, as of the date of the Stock Purchase Agreement, CAT owned [____]
Class B Common Shares, par value $0.001 per share and [____] Class C Common
Shares, par value $0.001 per share of the Company (collectively, the "Company
Shares").
WHEREAS, on or prior to the date of the Stock Purchase Agreement, the board
of directors of CAT has declared a dividend to distribute to its shareholders
and certain employees all shares of capital stock of the Company held by CAT and
not previously delivered to such Persons upon the exercise of options or other
contractual rights held by them (such distribution and option exercise together
referred to herein as the "Spin-Off").
WHEREAS, on or prior to the date hereof, Spin-Off has been consummated.
WHEREAS, as a condition and inducement to Grantee entering into the Stock
Purchase Agreement and incurring the obligations set forth herein, the Grantors
have agreed to enter into this Option Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations, warranties and agreements contained in this
Agreement, the parties to this Agreement agree as follows:
ARTICLE I
STOCK PURCHASE OPTION
SECTION 1.01 Option to Purchase Common Stock. (a) Upon the terms and
subject to the conditions of this Agreement, at any time during the period
beginning on the date of this Agreement and ending on the date which is the
earlier of (i) ninety (90) days from the date of the closing of the transactions
contemplated by the Stock Purchase Agreement and (ii) the date of the first
exercise of the
B-1
<PAGE>
Purchase Option (as defined below), whether in whole or in part (the "Option
Period"), each of the Grantors irrevocably grants to Grantee the right to
purchase (the "Purchase Option") from each such Grantor all or any portion of
such number of Company Shares of the Company as are indicated opposite such
Grantor's name on Exhibit A hereto (all such common shares being referred to as
the "Option Shares"). In the event Grantee would acquire Class B Common Shares
representing more than 18.85% of the voting power of the outstanding capital
stock of the Company upon exercise of the Purchase Option, Grantors may deliver
to Grantee in respect of the Class B Common Shares representing voting power in
excess of such 18.85% (the "Excess Class B Common Shares") such number of other
common shares of the Company (reasonably acceptable to the Grantee) as shall
provide Grantee with the same economic rights as the Excess Class B Common
Shares.
(b) The per share purchase price (the "Purchase Price") payable by Grantee
upon exercise of the Purchase Option with respect to any Option Share shall be
$138.25, payable in cash.
(c) In the event of the reorganization, reclassification, recapitalization,
merger or sale of the Company or the subdivision of its outstanding common
shares into a greater number of shares or the combination of its outstanding
common shares into a smaller number of shares, or in case any similar change in
the corporate or capital structure of the Company shall occur as to which the
other provisions of this subparagraph (c) are not strictly applicable but the
failure to make any adjustment would not fairly protect Grantee's purchase
rights represented by this Option Agreement, in accordance with the essential
intent and principles hereof then, in each such case, an adjustment to the
Purchase Price or number or character of Option Shares shall be made to
preserve, without dilution, the economic value of this Option Agreement measured
in terms of the fair value hereof immediately prior to such event. If the
parties hereto cannot agree upon either the need for such adjustment or the
amount or nature of such adjustment, the matter shall be submitted to Arthur
Andersen LLP, or if Arthur Andersen LLP is not available, another nationally
recognized public accounting firm mutually agreed upon by the parties hereto.
Grantee, on the one hand, and the Grantors, on the other, each shall bear one-
half of the fees, costs and expenses of the accounting firm retained to resolve
any objection under this subsection (c).
SECTION 1.02 Exercise of Purchase Option. At any time during the Option
Period, Grantee may notify the Grantors of its election to exercise the Purchase
Option, in whole or in part, by delivering an irrevocable written notice to the
Grantors stating that Grantee is exercising its Purchase Option and specifying
the number of Option Shares to be purchased and the date and time for the
closing of such purchase (the "Closing"), which date (the "Closing Date") shall,
subject to the satisfaction of the conditions to Closing set forth in Section
1.04 of this Agreement, not be sooner than three (3) business days nor later
than twenty (20) business days from the date such notice is delivered; provided,
that the Closing may not occur after the expiration of the Option Period. The
number and type of Option Shares to be sold by each Grantor, if less than all,
shall be apportioned among the Grantors in proportion to the number and type of
Option Shares held by them (with rounding as necessary to avoid fractional
shares). At the Closing, each Grantor shall deliver to Grantee one or more
certificates representing the Option Shares to be delivered on the Closing Date,
duly endorsed in blank for transfer or accompanied by duly executed stock
powers, signatures guaranteed, in form reasonably acceptable to Grantee and its
B-2
<PAGE>
counsel, and Grantee shall pay the Purchase Price attributable to each such
Option Share by wire transfer in immediately available funds to the account(s)
designated by the Grantors.
SECTION 1.03 Closing. The Closing shall be held at the offices of Mayer,
Brown & Platt, 1675 Broadway, New York, New York 10019 at 9:00 a.m. on the
Closing Date or at such other time and/or on such other date as the parties to
this Agreement shall agree.
SECTION 1.04 Conditions to Closing. (a) The respective obligation of each
party to effect the Closing is subject to the satisfaction or waiver on or prior
to the Closing Date of the following conditions:
(i) Any applicable waiting period (and any extension thereof) under
the HSR Act shall have been terminated or shall have expired.
(ii) No judgment, order, decree, statute, law, ordinance, rule or
regulation, entered, enacted, promulgated, enforced or issued by any court
or other governmental entity of competent jurisdiction or other legal
restraint or prohibition shall be in effect preventing the Closing or
prohibiting or limiting the ownership of the Option Shares by Grantee.
(b) The obligation of the Grantee to effect the Closing is subject to the
satisfaction or waiver on or prior to the Closing Date of the following further
conditions:
(i) The representations and warranties of the Grantors contained
herein shall be true and correct in all material respects on and as of the
Closing Date as if made on and as of such date (except to the extent such
representations and warranties speak as of an earlier date).
(ii) Grantee shall have received evidence satisfactory to it that all
consents and approvals required for the consummation of the transactions
contemplated by this Agreement and for the exercise of the Purchase Option
by Grantee (including the consent of lenders under the Company's revolving
credit agreement) have been obtained.
(c) The obligation of each Grantor to effect the Closing is subject to the
satisfaction or waiver on or prior to the Closing Date of the following further
conditions:
(i) The representations and warranties of Grantee contained herein
shall be true and correct in all material respects on and as of the Closing
Date as if made on and as of such date (except to the extent such
representations and warranties speak as of an earlier date); and
(ii) Grantee shall have executed an agreement, in form and substance
reasonably satisfactory to such Grantor, pursuant to which Grantee shall
have agreed to become bound by the provisions of the Stockholders'
Agreement in the form delivered to Grantee prior to the date hereof
(amended as described in Section 2.05) pursuant to the terms thereof.
B-3
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE GRANTORS
Each Grantor hereby represents and warrants to Grantee that:
SECTION 2.01 Authority. As of the date of this Agreement and as of the
Closing Date, such Grantor has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated by
this Agreement. The execution and delivery of this Agreement by such Grantor,
the performance by such Grantor of its obligations under this Agreement and the
consummation by such Grantor of the transactions contemplated by this Agreement
have been duly authorized by all necessary corporate action on the part of such
Grantor. No other corporate proceedings on the part of such Grantor are
necessary for the execution, delivery and performance of this Agreement by such
Grantor, the performance by such Grantor of its obligations under this Agreement
and the consummation by such Grantor of the transactions contemplated by this
Agreement. This Agreement has been duly executed and delivered by such Grantor
and (assuming the due authorization, execution and delivery of this Agreement by
the Grantee) constitutes a legal, valid and binding obligation of such Grantor,
enforceable against such Grantor in accordance with its terms, subject with
respect to enforceability to the effect of bankruptcy, fraudulent conveyance,
insolvency, reorganization, moratorium, or similar laws now or hereafter
affecting the enforcement of creditors' rights generally and to the availability
of equitable remedies.
SECTION 2.02 Ownership of Stock. As of the date of this Agreement and as of
the Closing Date, such Grantor will, with respect to the shares of capital stock
of the Company set forth next to the name of such Grantor in Exhibit A to this
Agreement (less any shares with respect to which the Purchase Option has been
exercised), (i) be the record and beneficial holder of such shares and (ii) own
such shares free and clear of all liens, charges and encumbrances other than the
Stockholders' Agreement. Grantors have provided Grantee a true and correct copy
of the Stockholders' Agreement. Upon the consummation of the transactions
contemplated by this Agreement, Grantee will own all shares of capital stock
transferred from such Grantor free and clear of all liens, charges and
encumbrances, other than restrictions imposed by applicable securities laws and
the Stockholders' Agreement.
SECTION 2.03 Capitalization. (a) As of the date of this Agreement, the
authorized share capital of the Company consists of (i) 9,000,000 shares of
Common Stock, par value $0.001 per share (the "Common Stock") and (ii) 1,000,000
shares of Preferred Stock, par value $0.001 per share (the "Preferred Stock").
Of the 9,000,000 shares of Common Stock authorized as of the date of this
Agreement, (i) 350,000 shares have been designated Class A Common Stock, of
which [ ] shares are outstanding, (ii) 650,000 shares have been designated
Class B Common Stock, of which [ ] shares are outstanding, (iii) 650,000
shares have been designated Class C Common Stock, of which [ ] shares are
outstanding, (iv) 3,000,000 shares have been designated Class D Common Stock, of
B-4
<PAGE>
which [ ] shares are outstanding, (v) 150,000 shares have been designated
Class E Common Stock, of which [ ] shares are outstanding, and (vi) 50,000
shares have been designated Class F Common Stock, of which [ ] shares are
outstanding. As of the date of this Agreement, the total number of common shares
of the Company indicated opposite the Grantors' names on Exhibit A hereto
constitutes twenty-nine percent (29%) of the Company's capital stock on a
primary basis.
(b) Other than Common Stock, as of the date of this Agreement, the Company
has no outstanding securities convertible into or exchangeable for any shares of
its capital stock and has no outstanding options or rights to subscribe for or
to purchase its capital stock or any securities convertible into or exchangeable
for its capital stock. Other than pursuant to the terms of the Stockholders'
Agreement, there are no preemptive rights with respect to the issuance of Common
Stock or Preferred Stock upon the exercise of the Purchase Option.
SECTION 2.04 Consents. Except for filings under Federal and applicable
state securities laws and the filing of a premerger notification and report form
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act") and except as referred to in Section 1.04(b) of this Agreement, no
permit, consent, approval or authorization of, or declaration to or filing with,
any governmental or regulatory authority or other person, not made or obtained,
is required in connection with the execution or delivery of this Agreement, the
sale or delivery of the Option Shares, or the carrying out by the Grantors of
the other transactions contemplated hereby.
SECTION 2.05 Amendment of Stockholders' Agreement. As of the date of this
Agreement, the Grantors have caused the Stockholders' Agreement dated as of
January 17, 1997, as amended, among the Company, CAT, Morgan Stanley, Dean
Witter, Discover & Co. (as successor to Morgan Stanley Group Inc.), Employers
Reinsurance Corporation, The Chubb Corporation and the Persons identified on the
signature pages thereof (the "Stockholders' Agreement") to be amended to permit
the sale of the Option Shares to the Grantee pursuant to the exercise of its
Purchase Option and to provide that Grantee will not be a "Designated CAT
Shareholder" pursuant to the terms of the Stockholders' Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF GRANTEE
Grantee hereby represents and warrants to the Grantors as follows:
SECTION 3.01 Corporate Organization. Grantee is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation. Grantee is not required to be authorized,
qualified, licensed or domesticated as a foreign corporation under any United
States federal, state or local corporate law. Grantee has furnished to the
Company and the Grantors complete and correct copies of its memorandum of
association and articles of association as in effect on the date
B-5
<PAGE>
of this Agreement. Such memorandum of association and articles of association
are in full force and effect.
SECTION 3.02 Authority. As of the date of this Agreement and as of the
Closing Date, Grantee has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement by Grantee, the
performance by Grantee of its obligations under this Agreement and the
consummation by Grantee of the transactions contemplated by this Agreement have
been duly authorized by all necessary corporate action on the part of Grantee.
No other corporate proceedings on the part of Grantee are necessary for the
execution, delivery and performance of this Agreement by Grantee, the
performance by Grantee of its obligations under this Agreement and the
consummation by Grantee of the transactions contemplated by this Agreement. This
Agreement has been duly executed and delivered by Grantee and (assuming the due
authorization, execution and delivery of this Agreement by the Grantors)
constitutes a legal, valid and binding obligation of Grantee, enforceable
against Grantee in accordance with its terms, subject with respect to
enforceability to the effect of bankruptcy, fraudulent conveyance, insolvency,
reorganization, moratorium, or similar laws now or hereafter affecting the
enforcement of creditors' rights generally and to the availability of equitable
remedies.
SECTION 3.03 Acquisition for Grantee's Account. The Option Shares to be
acquired by Grantee upon any exercise of the Purchase Options will be acquired
by Grantee for its own account and not with a view to the public distribution
thereof and will not be transferred except in compliance with the Securities Act
of 1933, as amended (the "Securities Act"), and the rules and regulations
promulgated thereunder.
ARTICLE IV
COVENANTS
SECTION 4.01 HSR Filing. Grantors shall, and shall cause the Company to,
make, and assist Grantee in making, any necessary filings under the HSR Act in
order to consummate the exercise of all or any portion of the Purchase Option.
SECTION 4.02 Financial Statements and Other Information. Until such time as
Grantee shall have exercised any portion of the Purchase Option, the Grantors
shall deliver to Grantee any financial statements and other information which
the Company distributes or makes available to its stockholders.
B-6
<PAGE>
ARTICLE V
MISCELLANEOUS
SECTION 5.01 Securities Act. (a) Grantee (A) understands that the Option
Shares have not been and will not be registered under the Securities Act or
under any state securities laws, and are being offered and sold in reliance upon
federal and state exemptions for transactions not involving any public offering,
(B) understands that the Option Shares may not be reoffered, resold, pledged or
otherwise transferred except pursuant to an effective registration statement or
in accordance with another exemption from the registration requirements of the
Securities Act, (C) has received certain information concerning the Company and
has had the opportunity to obtain additional information as desired in order to
evaluate the merits and the risks inherent in holding the Option Shares, (D) is
able to bear the economic risk and lack of liquidity inherent in holding the
Option Shares, and (E) is an "accredited investor" as such term is defined in
Rule 501 of Regulation D promulgated under the Securities Act.
(b) The certificates representing the Option Shares and any common shares
or other securities issued in respect of such Option Shares upon any stock
split, stock dividend, recapitalization, merger, consolidation or similar event,
may (unless otherwise permitted by applicable law) be stamped or otherwise
imprinted with legends, including the following:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES
LAW AND ARE SUBJECT TO CERTAIN RESTRICTIONS SET FORTH IN AN OPTION
AGREEMENT ON FILE WITH THE COMPANY."
SECTION 5.02 No Rights as Stockholder. The parties understand that prior to
the purchase by Grantee of any Option Shares pursuant to the terms hereof,
Grantee shall have no rights in respect of any of such Option Shares (including
without limitation, the right to vote or receive dividends in respect thereof)
other than the right, subject to the terms and conditions of this Agreement, to
exercise the Purchase Option.
SECTION 5.03 Further Assurances. From and after the date of this Agreement,
upon the request of Grantee, the Grantors shall, and shall cause the Company to,
execute and deliver such further instruments, documents and other writings or
cause to be done such further acts as may be reasonably necessary or desirable
to confirm and carry out and to effectuate fully the intent and purposes of this
Agreement.
SECTION 5.04 Assignment; Binding Effect. This Agreement shall not be
assignable by any party without the written consent of the other parties to this
Agreement; provided, however, that this Agreement is freely assignable by
Grantee without the consent of the Grantors to any direct or indirect subsidiary
of Grantee. This Agreement shall be binding upon the parties, their heirs,
personal representatives, successors and assigns.
B-7
<PAGE>
SECTION 5.05 Severability. The provisions of this Agreement are severable.
If any paragraph, subparagraph or provision of this Agreement is held invalid or
unenforceable, the remainder of the Agreement and the application of such
paragraph, subparagraph or provision to persons or circumstances other than
those with respect to which it is held invalid, shall remain valid and
enforceable.
SECTION 5.06 Notices. Any notices or other communications required or
permitted under, or otherwise in connection with, this Agreement shall be in
writing and shall be deemed to have been duly given when delivered in person or
upon confirmation of receipt when transmitted by facsimile transmission or on
receipt after dispatch by registered or certified mail, postage prepaid,
addressed, as follows:
(a) If to Grantee:
ACE Limited
The ACE Building
30 Woodbourne Ave.
Hamilton HM08 Bermuda
Telephone: (441) 295-5200
Facsimile: (441) 295-5221
Attention: Peter N. Mear
with copies to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Telephone: (312) 701-7100
Facsimile: (312) 701-7711
Attention: Edward S. Best
(b) If to the Grantors, to the address listed for each Grantor in
Exhibit A hereto
with copies to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Telephone: (212) 450-4000
Facsimile: (212) 450-4800
B-8
<PAGE>
Attention: Carole Schiffman
SECTION 5.07 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware regardless of
principles of conflicts of laws.
SECTION 5.08 Consent to Jurisdiction; Jury Trial; Venue. Each party to this
Agreement irrevocably submits to the exclusive jurisdiction of the courts of the
State of Delaware and of the United States sitting in the State of Delaware and
the provincial courts sitting in Toronto, Ontario, Canada or the Canadian
federal courts sitting in Toronto, Ontario, Canada, as the case may be, in
connection with any such dispute, litigation, action or proceeding arising out
of or relating to this Agreement. The service of any process or summons in
connection with any such dispute, litigation, action or proceeding brought in
any such court may be served on Grantee or any Grantor by mailing it a copy of
such process or summons at its address set forth, and in the manner provided, in
Section 5.06, with such service deemed effective on the fifteenth day after the
date of such mailing. In addition, to the copy of such process or summons mailed
as provided in the immediately preceding sentence, such party shall send an
additional copy of such process or summons by overnight courier to the address
set forth in Section 5.06.
Each party to this Agreement irrevocably waives the right to a trial by
jury in connection with any matter arising out of this Agreement and, to the
fullest extent permitted by applicable law, any defense or objection it may now
or hereafter have to the laying of venue of any proceeding under this Agreement
brought in the courts of the State of Delaware or of the United States sitting
in the State of Delaware or provincial courts sitting in Ontario, Canada or the
federal courts sitting in Toronto, Ontario, Canada and any claim that any
proceeding under this Agreement brought in any such court has been brought in an
inconvenient forum.
SECTION 5.09 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
SECTION 5.10 Headings and Captions. The titles and captions of the articles
and paragraphs contained in this Agreement are provided for convenience of
reference only and shall not be considered a part of this Agreement for purposes
of interpreting or applying this Agreement and, therefore, such titles or
captions do not define, limit, extend, explain or describe the scope or extent
of this Agreement or any of its terms, provisions, representations, warranties
or conditions in any manner whatsoever.
SECTION 5.11 Survival. The representations and warranties contained in this
Agreement and made on the date hereof and on the Closing Date with respect to
the purchase of any Option Shares shall not survive the Closing Date.
B-9
<PAGE>
SECTION 5.12 Expenses. All costs and expenses incurred in connection with
this Agreement shall be paid by the party incurring such cost or expense.
SECTION 5.13 Amendment. This Agreement may be modified, amended or changed
only with the written consent of all parties to this Agreement.
B-10
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Option
Agreement to be signed and sealed on its behalf by a duly authorized officer as
of the date first written above.
GRANTEE:
ACE LIMITED
By:
--------------------------------
Name:
Title:
GRANTORS:
THE CHUBB CORPORATION
By:
--------------------------------
Name:
Title:
<PAGE>
THE MORGAN STANLEY LEVERAGED
EQUITY FUND II, L.P.
By: Morgan Stanley Leveraged Equity
Fund II Inc., as general partner
By:
--------------------------------------
Name:
Title:
MELLON BANK N.A., solely in its capacity as
Trustee for First Plaza Group Trust (as directed
by General Motors Investment Management
Corporation), and not in its individual capacity
By:
--------------------------------------
Name:
Title:
LEEWAY & CO.
By: State Street Bank & Trust Co., a partner
By:
--------------------------------------
Name:
Title:
CHASE EQUITY ASSOCIATES, L.P.
By: Chase Capital Partners, as general
partner
By:
--------------------------------------
Name:
Title:
THE PLYMOUTH ROCK
COMPANY INCORPORATED
By:
--------------------------------------
Name:
Title:
<PAGE>
CHESNEY LIMITED
By:
---------------------------
Name:
Title:
CRS III LIMITED
By:
---------------------------
Name:
Title:
<PAGE>
EXHIBIT A
STOCKHOLDERS OF THE COMPANY
Stockholder Name and Address Number and Class of Option Shares
- ---------------------------- ---------------------------------
The Morgan Stanley Leveraged
Equity Fund II, L.P.
1221 Avenue of the Americas
33rd Floor
New York, New York 10020
Attn: General Counsel
First Plaza Group Trust
c/o Mellon Bank N.A.
One Mellon Center
500 Grant Street
Pittsburgh, Pennsylvania 15258-0001
Attn: Bernadette M. Rist
Leeway & Co.
c/o State Street Bank & Trust
1 Enterprise Drive
North Quincy, Massachusetts 02171
Attn: Kim Moynihan
Chase Equity Associates, L.P.
380 Madison Avenue
New York, New York 10017
Attn: John M.B. O'Connor
The Chubb Corporation
15 Mountain View Road
Warren, New Jersey 07061-1615
Attn: David Kelso
The Plymouth Rock Company Incorporated
695 Atlantic Avenue
Boston, Massachusetts 02111
Attn: James Stone
Exhibit A-1
<PAGE>
Stockholder Name and Address Number and Class of Option Shares
- ---------------------------- ---------------------------------
Chesney Limited
Analyst House
20-26 Peel Road
Douglas
Isle of Man IM99 1AP
United Kingdom
Attn: David Drewett
CRS III Limited
Cumberland House
One Victoria Street
Hamilton HM HX
Bermuda
Attn: President
Exhibit A-2
<PAGE>
EXHIBIT C-1
March 25, 1998
CAT Limited and its Shareholders
Cumberland House
One Victoria Street
P. O. Box HM 2702
Hamilton HM KX
Bermuda
Gentlemen:
Pursuant to the Option Agreement, dated _________, 199_ (the "Option
Agreement"), the undersigned is a holder of ___options (the "Options") of CAT
Limited ("CAT"), a Bermuda company limited by shares.
In consideration of the undersigned's right to receive the cash payments
(the "Payments") described in, and subject to the terms of, Article II of the
Stock Purchase Agreement (the "Agreement") to be entered into among ACE Limited
("ACE"), a Cayman Islands company, CAT and the CAT shareholders, a form of which
is attached hereto, the undersigned hereby unconditionally and irrevocably (i)
agrees to forever relinquish his rights to the Options and any rights that [it
or he] may have with respect to the Options under the Option Agreement, and (ii)
releases and discharges each of ACE and CAT and each other entity directly or
indirectly controlling, controlled by, or under common control with, ACE and CAT
and each other entity directly or indirectly controlling, controlled by, or
under common control with, ACE or CAT and any and all current or former
directors, officers and shareholders of any of the foregoing, of any claim,
obligation or liability, in law or in equity, that the undersigned had in the
past, now has or hereafter shall or may have for, upon or by any reason of any
event, matter or thing arising out of or relating to the undersigned's ownership
of Options, including, without limitation, (i) claims by the undersigned
alleging that the undersigned has a right to receive consideration in addition
to or different from the Payments and (ii) claims by the undersigned against
current or former directors of ACE and CAT alleging a breach of fiduciary duty
of such directors arising in connection with the transactions contemplated by
the Agreement.
Very truly yours,
C-1-1
<PAGE>
Agreed and Acknowledged
as of the date first above written:
CAT LIMITED
By:
------------------------
ACE LIMITED
By:
------------------------
THE MORGAN STANLEY
LEVERAGED EQUITY FUND II, L.P.
(as representative for the shareholders
of CAT on the date hereof)
By: Morgan Stanley Leveraged Equity Fund II, Inc.
as General Partner
By:
------------------------
C-1-2
<PAGE>
EXHIBIT C-2
March 25, 1998
CAT Limited and its Shareholders
Cumberland House
One Victoria Street
P. O. Box HM 2702
Hamilton HM KX
Bermuda
Gentlemen:
The undersigned is a holder of Series A and/or Series B Equity Award Units
issued by CAT Limited ("CAT"), a Bermuda company limited by shares, and/or
Hamilton Services Limited ("Hamilton"), a Bermuda company limited by shares (the
"Units"). Pursuant to the equity award agreements pursuant to which the
undersigned's Units were granted, the undersigned is entitled to receive the
cash payments (the "Payments") described in, and subject to the terms of,
Article II of the Stock Purchase Agreement (the "Agreement") to be entered into
among ACE Limited ("ACE"), a Cayman Islands company, CAT and the CAT
shareholders, a form of which is attached hereto.
In consideration of the undersigned's right to receive the Payments, the
undersigned hereby unconditionally and irrevocably releases and discharges each
of ACE, CAT and Hamilton and each other entity directly or indirectly
controlling, controlled by, or under common control with, ACE, CAT and Hamilton
and each other entity directly or indirectly controlling, controlled by, or
under common control with, ACE, CAT or Hamilton and any and all current or
former directors, officers and shareholders of any of the foregoing, of any
claim, obligation or liability, in law or in equity, that the undersigned had in
the past, now has or hereafter shall or may have for, upon or by any reason of
any event, matter or thing arising out of or relating to the undersigned's
ownership of Units, including, without limitation, (i) claims by the undersigned
alleging that the undersigned has a right to receive consideration in addition
to or different from the Payments and (ii) claims by the undersigned against
current or former directors of ACE, CAT and Hamilton alleging a breach of
fiduciary duty of such directors arising in connection with the transactions
contemplated by the Agreement.
Very truly yours,
C-2-1
<PAGE>
Agreed and Acknowledged
as of the date first above written:
CAT LIMITED
By:
-----------------------
ACE LIMITED
By:
-----------------------
HAMILTON SERVICES LIMITED
By:
-----------------------
THE MORGAN STANLEY
LEVERAGED EQUITY FUND II, L.P.
(as representative for the shareholders
of CAT on the date hereof)
By: Morgan Stanley Leveraged Equity Fund II, Inc.
as General Partner
By:
-----------------------
C-2-2
<PAGE>
EXHIBIT D
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (the "Agreement") is made and entered into this __
day of _____, 1998 by and among ACE Limited, a Cayman Islands company (the
"Purchaser"), the shareholders (the "Sellers") of CAT Limited, a Bermuda company
limited by shares (the "Company"), and The Bank of New York, a New York banking
corporation, as escrow agent (the "Escrow Agent").
WHEREAS, pursuant to the terms of a Stock Purchase Agreement, dated as of
March 25, 1998 (the "Stock Purchase Agreement"), between the Purchaser, the
Company and the Sellers, the Purchaser is concurrently with the execution of
this Agreement purchasing from the Sellers and the Sellers are selling to the
Purchaser all of the outstanding shares of capital stock of the Company.
WHEREAS, pursuant to the Stock Purchase Agreement, the Purchaser has agreed
to deliver to the Escrow Agent (as defined herein) the Escrow Amount to be held
and disbursed in accordance with the terms of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations, warranties and agreements contained in this
Agreement, the parties to this Agreement agree as follows:
ARTICLE I
ESCROW
SECTION 1.01 Appointment of Escrow Agent. Purchaser and Sellers hereby
appoint the Escrow Agent to serve as the escrow agent under and to administer
the terms of this Agreement and the Escrow Agent accepts such appointment and
agrees to perform the duties of Escrow Agent under this Agreement.
SECTION 1.02 Deposit of Escrow Amount. Purchaser has concurrently with the
execution and delivery of this Agreement, caused to be deposited in escrow with
the Escrow Agent an amount in immediately available funds equal to the Escrow
Amount, which shall be held by Escrow Agent in trust for the benefit of
Purchaser and the Sellers, and shall be released and disbursed by the Escrow
Agent only in accordance with the terms of this Agreement.
SECTION 1.03 Delivery of Escrow Amount. Whenever there shall be delivered
to the Escrow Agent either:
(i) a joint or counterpart written notice of the Sellers Representative
and the Purchaser, or
D-1
<PAGE>
(ii) a certified copy of a final judgment, award or determination
(including the determination specified in Section 2.05 of the Stock Purchase
Agreement) determining, that there exists a Net Book Value Shortfall or a Net
Book Value Difference and specifying, in the case of a Net Book Value
Difference, the amount thereof, the Escrow Agent shall deliver to Purchaser by
wire transfer of immediately available funds from the escrow to the account or
accounts designated by the Purchaser an amount in cash equal to (A) if there
shall be a Net Book Value Shortfall, the Escrow Amount (together with interest
thereon as specified in Section 1.05 below), and (B) if there shall be a Net
Book Value Difference, the lesser of (1) the amount of Net Book Value Difference
(together with interest thereon as specified in Section 1.05 below) as set forth
in such final certificate, award or determination or (2) the Escrow Amount
(together with interest thereon as specified in Section 1.05 below) then held by
the Escrow Agent. A judgment, award or determination (other than a determination
pursuant to Section 2.05 of the Stock Purchase Agreement) shall not be deemed to
be final for purposes of this Agreement until the time within which an appeal
may be taken therefrom has expired and no appeal has been taken, or until the
entry of a judgment, award or determination from which no appeal may be taken.
The Sellers Representative and the Purchaser agree to deliver the joint or
counterpart written notice referred to in clause (i) above on the Determination
Date.
SECTION 1.04 Investment of Escrow Amount. (a) The Escrow Amount shall be
invested by the Escrow Agent in securities which are treasury bills of the
United States Government with a maturity date not longer than 45 days from the
date of purchase.
(b) Whenever the Escrow Agent shall be required to deliver any
portion of the Escrow Amount to the Purchaser pursuant to Section 1.03, the
Escrow Agent shall liquidate the securities held hereunder in order to make the
delivery required by Section 1.03. The Escrow Agent shall not be liable for any
diminution in the Escrow Amount due to losses resulting from investments or
their liquidation.
SECTION 1.05 Termination of Escrow. (a) If there shall be a Net Book Value
Increase, the escrow shall terminate on the Determination Date. If there shall
be a Net Book Value Shortfall, the escrow shall terminate on the date on which
the Purchaser shall have been paid the Escrow Amount. If there shall be a Net
Book Value Difference, the escrow shall terminate on the date on which the
Purchaser shall have been paid out of the Escrow Amount an amount equal to the
lesser of (i) the Escrow Amount or (ii) such Net Book Value Difference, as the
case may be. In any such event, any interest earned on the Escrow Amount shall
be paid to the Purchaser and the Sellers, pro rata according to the percentage
of the Escrow Amount payable to them as set forth in a joint written notice from
the Purchaser and the Sellers Representative to the Escrow Agent.
D-2
<PAGE>
(b) Upon termination of the escrow, the Escrow Agent shall distribute
to each Seller, Equity Award Unit Holder and Option Holder a portion of the
Escrow Amount remaining in the escrow account (after any disbursements required
to be made to Purchaser pursuant to Section 1.05(a) above) based on the
percentage set forth opposite their names on Exhibit A hereto.
(c) Any cash funds to be disbursed by the Escrow Agent shall be sent
by wire transfer of immediately available funds to the account or accounts
designated by each Seller, Equity Award Unit Holder and Option Holder or
Purchaser, as the case may be, not less than two business days prior to the
termination of the escrow. If no such wire transfer instructions are provided,
any cash funds to be disbursed by the Escrow Agent will be disbursed by official
bank or cashier's check made payable to such party and sent by overnight courier
to such party's address as listed in the Stock Purchase Agreement, unless other
arrangements reasonably satisfactory to the Escrow Agent are made.
ARTICLE II
ESCROW AGENT
SECTION 2.01 Escrow Agent Fees and Expenses. The Escrow Agent's fee for
serving as the Escrow Agent hereunder shall be payable by the Purchaser and
shall be as agreed between them in writing. Further, the Escrow Agent shall be
reimbursed by the Purchaser for all reasonable expenses (including attorneys'
fees and expenses) incurred by the Escrow Agent in the performance of its duties
hereunder.
SECTION 2.02 Scope of Undertaking. The Escrow Agent's duties and
responsibilities in connection with this Agreement shall be purely ministerial
and shall be limited to those expressly set forth in this Agreement. The Escrow
Agent is not a principal, participant or beneficiary in any transaction
underlying this Agreement and shall have no duty to inquire beyond the terms and
provisions hereof. The Escrow Agent shall have no responsibility or obligation
of any kind in connection with this Agreement and shall not be required to
deliver the property held in the escrow or any part thereof or take any action
with respect to any matters that might arise in connection therewith, other than
to hold and deliver the property as herein provided. Without limiting the
generality of the foregoing, it is hereby expressly agreed and stipulated by the
parties hereto that the Escrow Agent shall not be required to exercise any
discretion hereunder and shall have no investment or management responsibility
other than as set forth herein and, accordingly, shall have no duty to, or
liability for its failure to, provide investment recommendations or investment
advice to the other parties or either of them. The Escrow Agent shall not be
liable for any error in judgment, any act or omission, any mistake of law or
fact, or for anything it may do or refrain from doing in connection herewith,
except for, subject to Section 2.03 below, its own wilful misconduct or gross
negligence. It is the intention of the parties hereto that the Escrow Agent
shall never be required to use, advance or risk its own funds or otherwise incur
financial liability in the performance of any of its duties or the exercise of
any of its rights and powers hereunder. Notwithstanding anything herein to the
contrary, the Escrow Agent shall have no
D-3
<PAGE>
obligation to file or prepare any tax returns or to prepare any other reports
for any taxing authorities concerning the matters covered by this Agreement.
SECTION 2.03 Reliance; Liability. The Escrow Agent may conclusively rely
on, and shall not be liable for acting or refraining from acting upon, any
written notice, instruction or request or other paper furnished to it hereunder
or pursuant hereto and believed by it to be genuine and what it purports to be
and to have been signed or presented by the proper party or parties. The Escrow
Agent shall be responsible for holding and disbursing the property held in the
escrow pursuant to this Agreement; provided that in no event shall the Escrow
Agent be liable for any lost profits, lost savings, or other special, exemplary,
consequential or incidental damages, except to the extent such losses or damages
are attributable to the gross negligence or wilful misconduct of the Escrow
Agent; and provided further that the Escrow Agent shall have no liability for
any loss or damage arising from any cause beyond its control, including, but not
limited to, the following:
(a) acts of God, force majeure, including, without limitation, war
(whether or not declared or existing), revolution, insurrection, riot, civil
commotion, accident, fire, explosion, stoppage of labor, strikes and other
differences with employees;
(b) the act, failure or neglect of any other party or any agent or
correspondent or any other person reasonably selected by Escrow Agent;
(c) any delay, error, omission or default of any mail, courier,
telegraph, cable or wireless agency or operator; or
(d) the acts or edicts of any government or governmental agency or
other group or entity exercising governmental powers.
In addition, the Escrow Agent is not responsible or liable in any manner
whatsoever for the sufficiency, correctness, genuineness or validity of the
subject matter of this Agreement or any part hereof or for the transaction or
transactions requiring or underlying the execution of this Agreement, the form
or execution hereof or for the identity or authority of any person executing
this Agreement or any part hereof.
SECTION 2.04 Right of Interpleader. Should any controversy arise involving
the parties hereto or any of them or any other person, firm or entity with
respect to this Agreement, or should a substitute escrow agent fail to be
designated as provided below, or if the Escrow Agent should be in doubt as to
what action to take, the Escrow Agent shall have the right, but not the
obligation, either to (a) withhold delivery of the property until the
controversy is resolved, the conflicting demands are withdrawn, or its doubt is
resolved or (b) institute a petition for interpleader in any court of competent
jurisdiction to determine the rights of the parties hereto. Should a petition
for interpleader be instituted, or should the Escrow Agent be threatened with
litigation or become involved in litigation in any manner whatsoever in
connection with this Agreement, then, as between the other parties on the one
hand and
D-4
<PAGE>
the Escrow Agent on the other, the Purchaser agrees to reimburse the Escrow
Agent for its reasonable attorneys' fees and expenses and any and all other
expenses, losses, costs and damages of the Escrow Agent in connection with or
resulting from such threatened or actual litigation.
SECTION 2.05 Indemnification. Purchaser hereby agrees to indemnify the
Escrow Agent, its officers, directors, employees and agents (each herein called
an "Indemnified Party") against, and hold each Indemnified Party harmless from,
any and all expenses, losses, costs and damages, including, without limitation,
attorneys' fees, and claims, including, but not limited to, costs of
investigation, litigation, arbitration, tax liability or loss on investments,
suffered or incurred by any Indemnified Party in connection with or arising from
or out of this Agreement, except such expenses, losses, costs, damages and
claims as may result from the wilful misconduct or gross negligence of such
Indemnified Party.
SECTION 2.06 Resignation and Removal. The Escrow Agent may resign
hereunder upon thirty (30) calendar days' prior notice to the other parties.
Upon the effective date of such resignation, the Escrow Agent shall deliver the
Escrow Amount at the time of such resignation to any substitute escrow agent
designated by the other parties in writing. If the other parties fail to
designate a substitute escrow agent within thirty (30) calendar days after the
giving of such notice, the Escrow Agent may institute a petition for
interpleader in any court of competent jurisdiction. The Escrow Agent's sole
responsibility after such 30-day notice period expires shall be to hold such
property and to deliver the same to a designated substitute escrow agent, if
any, or in accordance with the directions of a final order or judgment of a
court of competent jurisdiction, at which time of delivery the Escrow Agent's
obligations hereunder shall cease and terminate. The other parties may remove
and replace the Escrow Agent by a writing signed by both Purchaser and Sellers
and delivered to the Escrow Agent and the Escrow Agent shall deliver the escrow
property at the time of such removal to any designated replacement Escrow Agent
selected by the other parties.
The provisions of this Article II shall survive the termination of
this Agreement or the appointment of any successor escrow agent hereunder.
ARTICLE III
MISCELLANEOUS
SECTION 3.01 Defined Terms. Capitalized terms used herein without
definition shall have the respective meanings set forth in the Stock Purchase
Agreement which is attached hereto as Exhibit B solely for the purpose of
determining the meanings of such capitalized terms.
SECTION 3.02 Amendment. This Agreement may be amended, modified or
supplemented, but only in writing signed by Escrow Agent, the Purchaser and
Sellers.
D-5
<PAGE>
SECTION 3.03 Notices. Any notices or other communications required or
permitted under, or otherwise in connection with, this Agreement shall be in
writing and shall be deemed to have been duly given when delivered in person or
upon confirmation of receipt when transmitted by facsimile transmission or on
receipt after dispatch by registered or certified mail, postage prepaid,
addressed, as follows:
(a) if to the Purchaser, to:
ACE Limited
The ACE Building
30 Woodbourne Ave.
Hamilton HM08 Bermuda
Telephone: (441) 295-5200
Facsimile: (441) 295-5221
Attention: Peter N. Mear
with copies to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, IL 60603
Telephone: (312) 701-7100
Facsimile: (312) 701-7711
Attention: Edward S. Best
(b) if to the Sellers, to the addresses listed for each Seller in
Exhibit A to the Stock Purchase Agreement.
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Telephone: (212) 450-4000
Facsimile: (212) 450-4800
Attention: Carole Schiffman
D-6
<PAGE>
(c) if to the Escrow Agent:
The Bank of New York
101 Barclay Street
New York, New York 10286
Telephone: (212) 815-7172
Facsimile: (212) 815-7181
Attention: Matthew Louis
Corporate Trust Officer
Insurance Trust and Escrow Unit - 12E
or to such other individual or address as a party hereto may designate for
itself by notice given as herein provided.
SECTION 3.04 Waivers. The failure of a party hereto at any time or times
to require performance of any provision hereof shall in no manner affect its
right at a later time to enforce the same. No waiver by a party of any condition
or of any breach of any term, covenant, representation or warranty contained in
this Agreement shall be effective unless in writing, and no waiver in any one or
more instances shall be deemed to be a further or continuing waiver of any such
condition or breach in other instances or a waiver of any other condition or
breach of any other term, covenant, representation or warranty.
SECTION 3.05 Assignment. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns; provided that no assignment of any rights or obligations
shall be made by any party without the written consent of the other parties.
SECTION 3.06 Severability. If any provision of this Agreement shall be
held invalid, illegal or unenforceable, the validity, legality or enforceability
of the other provisions hereof shall not be affected thereby, and there shall be
deemed substituted for the provision at issue a valid, legal and enforceable
provision as similar as possible to the provision at issue.
SECTION 3.07 Remedies Cumulative. The remedies provided in this
Agreement shall be cumulative and shall not preclude the assertion or exercise
of any other rights or remedies available by law, in equity or otherwise.
SECTION 3.08 Entire Understanding. This Agreement sets forth the entire
agreement and understanding of the parties hereto in respect to the transactions
contemplated hereby and supersedes any and all prior agreements, arrangements
and understandings among the parties relating to the subject matter hereof.
D-7
<PAGE>
SECTION 3.09 Applicable Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Delaware without giving effect to the principles of conflicts of law thereof.
SECTION 3.10 Consent to Jurisdiction; Jury Trial; Venue. Each party to
this Agreement irrevocably submits to the non-exclusive jurisdiction of the
courts of the State of Delaware and of the United States sitting in the State of
Delaware, in connection with any such dispute, litigation, action or proceeding
arising out of or relating to this Agreement. The service of any process or
summons in connection with any such dispute, litigation, action or proceeding
brought in any such court may be served on Purchaser, the Company or any Seller
by mailing it a copy of such process or summons at its address set forth, and in
the manner provided, in Section 3.03, with such service deemed effective on the
fifteenth day after the date of such mailing. In addition, to the copy of such
process or summons mailed as provided in the immediately preceding sentence,
such party shall send an additional copy of such process or summons by overnight
courier to the address set forth in Section 3.03.
Each party to this Agreement irrevocably waives the right to a trial
by jury in connection with any matter arising out of this Agreement and, to the
fullest extent permitted by applicable law, any defense or objection it may now
or hereafter have to the laying of venue of any proceeding under this Agreement
brought in the courts of the State of Delaware or of the United States sitting
in the State of Delaware and any claim that any proceeding under this Agreement
brought in any such court has been brought in an inconvenient forum.
SECTION 3.11 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
D-8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Escrow Agreement to
be duly executed as of the date first above written.
ACE LIMITED
By
----------------------------
Name:
Title:
THE BANK OF NEW YORK
By
----------------------------
Name:
Title:
THE MORGAN STANLEY LEVERAGED
EQUITY FUND II, L.P.
By: Morgan Stanley Leveraged Equity
Fund II Inc., as general partner
By
----------------------------
Name:
Title:
MELLON BANK N.A., solely in its capacity
as Trustee for First Plaza Group Trust
(as directed by General Motors Investment
Management Corporation), and not in its
individual capacity
By
----------------------------
Name:
Title:
LEEWAY & CO.
By: State Street Bank & Trust Co., a
partner
By
----------------------------
Name:
Title:
<PAGE>
CHASE EQUITY ASSOCIATES, L.P.
By: Chase Capital Partners, as
general partner
By
-------------------------------
Name:
Title:
THE CHUBB CORPORATION
By
-------------------------------
Name:
Title:
THE PLYMOUTH ROCK
COMPANY INCORPORATED
By
-------------------------------
Name:
Title:
CHESNEY LIMITED
By
-------------------------------
Name:
Title:
CRS III LIMITED
By
-------------------------------
Name:
Title:
<PAGE>
EXHIBIT E
FORM OF OPINION OF MAPLES & CALDER
1. Purchaser is a company duly organized, validly existing and in good
standing under the laws of the Cayman Islands.
2. Purchaser has all requisite corporate power and authority to enter
into the Agreement, the Escrow Agreement and the Option Agreement and to
consummate the transactions contemplated by the Agreement, the Escrow Agreement
and the Option Agreement. The execution and delivery of the Agreement, the
Escrow Agreement and the Option Agreement by the Purchaser, the performance by
the Purchaser of its obligations thereunder and the consummation of the
transactions contemplated by the Agreement, the Escrow Agreement and the Option
Agreement have been duly authorized by all necessary corporate action on the
part of Purchaser. The Agreement, the Escrow Agreement and the Option Agreement
have been duly executed and delivered by the Purchaser and (assuming the due
authorization, execution and delivery thereof by the other parties thereto)
constitute legal, valid and binding obligations of the Purchaser, enforceable
against the Purchaser in accordance with their terms, subject with respect to
enforceability to the effect of bankruptcy, fraudulent conveyance, insolvency,
reorganization, moratorium, or similar laws now or hereafter affecting the
enforcement of creditors' rights generally and to the availability of equitable
remedies.
FORM OF OPINION OF MAYER, BROWN & PLATT AND APPLEBY, SPURLING & KEMPE
1. Except for the consent of the Minister or in the case of the Option
Agreement, compliance with the applicable requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, no Consent is required on the part of the
Purchaser in connection with the transactions contemplated by the Agreement or
the Option Agreement, except those required by United States federal and state
securities or "Blue Sky" laws and except where failure to obtain such Consent
would not effect the ability of Purchaser to perform its obligations under the
Agreement or consummate the transactions contemplated thereby.
E-1
<PAGE>
EXHIBIT F
FORM OF OPINION OF SELLER'S COUNSEL
1. Upon the registration in the Register of Members of the Company of the
transfer of the Shares to ACE Limited, ACE Limited will be the legal owner of
the Shares [free of any adverse claim].
2. Seller is a corporation, trust, limited liability, partnership or
other similar entity duly organized, validly existing and, if applicable, in
good standing under the laws of its jurisdiction of its organization.
3. Seller has all requisite power and authority to enter into this
Agreement, the Escrow Agreement and the Option Agreement and to consummate the
transactions contemplated by the Agreement, the Escrow Agreement and the Option
Agreement. The execution and delivery of the Agreement, Escrow Agreement and
the Option Agreement by Seller, the performance by Seller of its obligations
thereunder and the consummation of the transactions contemplated by the
Agreement, the Escrow Agreement and the Option Agreement have been duly
authorized by all necessary action on the part of Seller. The Agreement and the
Escrow Agreement have been duly executed and delivered by Seller and constitute
and, when executed and delivered in accordance with its terms, the Option
Agreement will constitute, (in each case, assuming the due authorization,
execution and delivery thereof by the other parties thereto) legal, valid and
binding obligations of Seller, enforceable against Seller in accordance with
their terms, subject with respect to enforceability to the effect of bankruptcy,
fraudulent conveyance, insolvency, reorganization, moratorium, or similar laws
now or hereafter affecting the enforcement of creditors' rights generally and to
the availability of equitable remedies.
4. Except for the consent of the Minister or in the case of the Option
Agreement, compliance with the applicable requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 ("HSR"), no Consent is required as of the
date hereof to be made or obtained by Seller in connection with the execution,
delivery and performance of the Agreement or the Option Agreement or the
consummation of the transactions contemplated by the Agreement or the Option
Agreement, except where failure to obtain such Consent would not affect the
ability of such Seller to perform its obligations under the Agreement or the
Option Agreement or consummate the transactions contemplated thereby; provided
that no opinion shall be given as to U.S. federal or state or Blue Sky laws or
HSR.
F-1
<PAGE>
EXHIBIT 4.3
SPECIAL RESOLUTION
ADOPTED FEBRUARY 6, 1998
AND
EFFECTIVE MARCH 2, 1998
RESOLVED, that
1.1 Article Six of the Company's Memorandum of Association shall be amended,
as set forth below, to effect a three-for-one split of the Company's Ordinary
Shares and to eliminate the Company's Callable Preferred Shares:
6. The share capital of the Company is U.S. $22,500,000, divided into
300,000,000 Ordinary Shares, par value of U.S. $0.041666667 per share, and
10,000,000 other Shares, par value of U.S. $1.00 per share, which may be
issued in series, all of such shares with power for the Company insofar as
is permitted by law, to redeem, call or purchase any of its shares and to
increase or reduce the said capital subject to the provisions of the
Companies Law (Cap. 22) and the Articles of Association and to issue any
part of its capital, whether original, redeemed, called or increased with
or without any preference, priority or special privilege or subject to any
postponement of rights or to any conditions or restrictions and so that
unless the conditions of issue shall otherwise expressly declare every
issue of shares whether declared to be preference or otherwise shall be
subject to the powers hereinabove contained.
1.2 At 11:59 p.m. (New York City time) on the date the aforementioned
Amendment is filed with the Registrar of Companies of the Cayman Islands (the
"Effective Time"), such Amendment shall become effective and each Ordinary
Share, par value $0.125 per share, of the Company issued and outstanding
immediately prior to the Effective Time will automatically be split into three
Ordinary Shares, par value $0.041666667 per share.
1.3 The first paragraph of Article 4(a) of the Company's Amended and
Restated Articles of Association (the "Articles") shall be amended as set
forth below:
(a) The authorised share capital shall be represented by Ordinary Shares
with respective rights as set forth in Part I below, and other classes or
series of Shares with respective rights to be determined upon the creation
thereof by action of the Directors from time to time as set forth in Part
II below.
1.4 Article 4(a) of the Articles shall be amended by deleting in its
entirety "Part I--Callable Preferred Shares" and by renumbering "Part II--
Ordinary Shares" as "Part I--Ordinary Shares" and "Part III--Other Classes or
Series of Shares" as "Part II--Other Classes or Series of Shares."
1.5 The officers of the Company are authorized and directed to do or cause
to be done any and all such acts and things and execute and deliver any and
all such documents and papers as they may deem necessary or appropriate to
carry out the purposes of the foregoing resolutions.
<PAGE>
EXHIBIT 4.4
SPECIAL RESOLUTION
ADOPTED FEBRUARY 6, 1998
AND
EFFECTIVE MARCH 2, 1998
RESOLVED, that
1.1 Article 33 of the Company's Amended and Restated Articles of Association
shall be amended as set forth below:
33. In lieu of or apart from closing the register of Members, the
Directors may fix in advance a date as the record date for any such
determination of Members entitled to notice of or to vote at a meeting of
the Members and for the purpose of determining the Members entitled to
receive payment of any dividend.
1.2 The officers of the Company are authorized and directed to do or cause
to be done any and all such acts and things and execute and deliver any and
all such documents and papers as they may deem necessary or appropriate to
carry out the purposes of the foregoing resolutions.
<PAGE>
EXHIBIT 5.1
30 March, 1998
ACE Limited
The ACE Building
30 Woodbourne Street
Hamilton HM 08 Bermuda
Re: ACE Limited
Registration Statement on Form S-3
Dear Sirs:
We have acted as Cayman Islands counsel to ACE Limited (the "Company") in
connection with the registration of Ordinary Shares, par value $0.041666667
per share, of the Company under the Securities Act of 1933, as amended, in
accordance with the Company's Registration Statement on Form S-3 filed with
the Securities and Exchange Commission on March 30, 1998 (the "Registration
Statement").
In rendering the opinions expressed herein, we have examined and are
familiar with the Registration Statement as an exhibit to which this opinion
will be filed. We have also examined such other documents and instruments
(including the Company's Memorandum and Articles of Associates, as amended)
and have made such further investigation as we have deemed necessary or
appropriate in connection with this opinion.
We have relied in giving this opinion on certifications, given by the
Company's officers. We have assumed that there will be no intervening changes
to the structure of the proposed issue, nor to the Company's Memorandum or
Articles of Association, the laws of the Cayman Islands or any other relevant
matter.
Based upon and subject to the foregoing, and having regard for legal
considerations which we deem relevant, we are of the opinion that:
1. On the basis that the contractual consideration (being worth not less
than the par value) for the Ordinary Shares is duly transferred to, and
received by, the Company such Ordinary Shares issued or to be issued may
properly be registered in the Company's share register and credited as
fully paid under Cayman Islands law.
2. Fully paid shares are not subject to further calls or assessments by
the Company.
3. The Company has been incorporated as an exempted company under the
Companies Law (1995 Revision) of the Cayman Islands and the liability of
its shareholders is limited to the amount, if any, unpaid on their shares
(per Clause 5 of the Company's Memorandum of Association). On the basis
that all such shares are fully paid, there is no rule of Cayman Islands law
that would impose any further liability on person holding shares in the
Company, merely by reason of such shareholding.
We consent to the filing of this opinion as an exhibit to the Registration
Statement referred to above and to all references to this firm in such
Registration Statement.
Yours faithfully,
Maples and Calder
<PAGE>
EXHIBIT 8.1
30 March, 1998
ACE Limited
The ACE Building
30 Woodbourne Street
Hamilton HM 08 Bermuda
Re: ACE Limited
Registration Statement on Form S-3
Dear Sirs:
We have acted as Cayman Islands counsel to ACE Limited (the "Company") in
connection with the registration of Ordinary Shares, par value $0.041666667
per share, of the Company under the Securities Act of 1933, as amended, in
accordance with the Company's Registration Statement on Form S-3 filed with
the Securities and Exchange Commission on 30 March, 1998 (the "Registration
Statement").
In rendering the opinions expressed herein, we have examined the
Registration Statement as an exhibit to which this opinion will be filed. We
have also examined such other documents and instruments and have made such
further investigation as we have deemed necessary or appropriate in connection
with this opinion.
Based upon and subject to the foregoing, and having regard for legal
considerations which we deem relevant, we hereby confirm, and adopt as our
opinion, the statements of legal matters contained in the Prospectus contained
in the above-referenced Registration Statement under the caption "Taxation of
Shareholders of the Company--Cayman Islands Taxation."
We consent to the filing of this opinion as an exhibit to the Registration
Statement referred to above and to all references to this firm in such
Registration Statement.
Yours faithfully,
Maples and Calder
<PAGE>
EXHIBIT 8.2
March 30, 1998
ACE Limited
The ACE Building
30 Woodbourne Street
Hamilton HM 08 Bermuda
Re: ACE Limited
Registration Statement on Form S-3
Dear Sirs:
We have represented ACE Limited (the "Company") in connection with the
registration of Ordinary Shares, par value $0.041666667 per share (the
"Ordinary Shares"), of the Company under the Securities Act of 1933, as
amended, with respect to the Company's Registration Statement on Form S-3
filed with the Securities and Exchange Commission on March 30, 1998 (the
"Registration Statement").
In rendering the opinions expressed herein, we have examined and are
familiar with the Registration Statement as an exhibit to which this opinion
will be filed. We have also examined such other documents and instruments and
have made such further investigation as we have deemed necessary or
appropriate in connection with this opinion.
Based upon and subject to the foregoing, and having regard for legal
considerations which we deem relevant, we hereby confirm, and adopt as our
opinion, the statements of legal matters contained in the Prospectus contained
in the above-referenced Registration Statement under the caption "Taxation of
Shareholders of the Company--United States Taxation of U.S. and Non-U.S.
Shareholders."
We consent to the filing of this opinion as an exhibit to the Registration
Statement referred to above and to all references to this firm in such
Registration Statement.
Very truly yours,
Mayer, Brown & Platt
<PAGE>
EXHIBIT 8.3
30 March, 1998
ACE Limited
The ACE Building
30 Woodbourne Street
Hamilton HM 08 Bermuda
Re: ACE Limited
Registration Statement on Form S-3
Dear Sirs:
We have acted as special legal counsel in Bermuda to the Company on advising
only on a certain statement of Bermuda law (as described below), with respect
to the Company's Registration Statement on Form S-3 filed with the United
States Securities and Exchange Commission on 30 March, 1998 (the "Registration
Statement") being in connection with the registration of Ordinary Shares, par
value US$0.041666667 per share, of the Company (the "Ordinary Shares") under
the United States Securities Act of 1933, as amended. This opinion is to be an
exhibit to the Registration Statement.
For purposes of giving this opinion, we have examined the Registration
Statement and such other documents and made such enquiries as to questions of
Bermuda law as we have deemed necessary in order to render the opinions set
forth below.
We have assumed (a) the accuracy and completeness of all factual
representations made in the Registration Statement and other documents
reviewed by us and (b) that there is no provision of the law of any
jurisdiction, other than Bermuda, which would have any implication in relation
to the opinions expressed herein.
We have made no investigation of and express no opinion in relation to (i)
the incorporation and organization of, and the compliance with Bermuda law by,
the Company or any of its subsidiaries and affiliates, (ii) any actual and
proposed transactions described in the Registration Statement and (iii) the
laws of any jurisdiction other than Bermuda. This opinion is governed by and
construed in accordance with the laws of Bermuda and is limited to and is
given on the basis of the current law and practice in Bermuda.
On the basis of, and subject to, the foregoing, we are of the opinion that
the statement on Bermuda law set forth in the Registration Statement under the
heading "Taxation of Shareholders of the Company--Bermuda Taxation" is
accurate in all material respects.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to our firm passing upon the said
Bermuda law matters in the said section of the Registration Statement.
Yours faithfully,
Conyers, Dill & Pearman
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of ACE Limited on Form S-3 of our reports dated November 5, 1997, on our
audits of the consolidated financial statements and financial statement
schedules of ACE Limited as of September 30, 1997 and 1996 and for each of the
three years in the period ended September 30, 1997, which reports are
incorporated by reference in or included in the Annual Report on Form 10-K of
ACE Limited for the fiscal year ended September 30, 1997. We also consent to
the reference to our firm under the caption "Experts."
Coopers & Lybrand L.L.P.
March 30, 1998
New York, New York
<PAGE>
EXHIBIT 99.2
[CT CORPORATION SYSTEM LETTERHEAD]
208 South LaSalle Street
Chicago, Illinois 60604
Tel. 312-345-4324
Fax 312-263-0124
February 11, 1998
Mayer, Brown & Platt
Attn: Howard L. Rosenberg, Sr. Para.
190 S. LaSalle Street
Chicago, Illinois 60603
RE: ACE LIMITED (C.I.)
Dear Howard:
May this letter serve to confirm that we, C T Corporation System, currently
represent the above named entity as Agent under the Registration Statement
filed with the Securities and Exchange Commission ("SEC") on November 24,
1993. The aforementioned appointment applies to any subsequent registration
statements filed with the SEC and is not due to expire until November 24,
2001.
We appreciate the opportunity to be of service.
Thank you for using C. T.
Very truly yours,
/s/ Julianna D. Peterson
Julianna D. Peterson
Sr. Customer Specialist
